A Political Economy
24 Jan 2014
With a series of elections due in emerging markets (EMs) in 2014, Dhiren Shah reveals what their impacts might be, both on policies and markets, and digs further into why investing in income could provide benefits in such an environment.
Reform must be on the agenda
Political cycles and the decisions which follow can have dramatic impacts on emerging economies. These less developed economies have tremendous potential for above average growth for a number of familiar reasons - productivity, urbanisation, demographics, financial intermediation, and so on – but in order for this potential to be realised, continuous reforms are necessary. Reforms can enhance productivity, raise potential GDP and support sustainable long-term growth.
That’s particularly important given economic growth has slowed in EMs in recent years from 7% to around 4.5%. Reasons for that are plentiful, but the two most important are weak export growth – weighed down by austerity hit European markets, a subdued US consumer and yen weakness – and limited investment. The latter is a function of diminished corporate confidence as a result of global economic weakness (with fears centred on the eurozone) and weak domestic policy / insufficient reform.
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