The lion's share of global economic growth this year will take place in emerging markets. However, as those markets are not decoupled from the developed world, their growth will slow and the recovery of developed economies will ultimately drive global economic growth in the future, according to the Deloitte Touche Tohmatsu (DTT) Global economic outlook report for Q1 2009.
The report reveals that although the current recession will be a setback for emerging markets around the world, these markets continue to have productive potential and unmet need for investment.
"The principal problem is confidence; in banks to lend, and in investors to tolerate risk," explains Ira Kalish, director of global economics, DTT. "That is why we see and will continue to see unprecedented government intervention during this crisis."
The report suggests a third wave is looming as new bank write-downs loom due to credit card defaults gaining in the United States. In addition, global trade is at risk due to the credit crisis. Also, commodity exporting countries face new problems due to the collapse of commodity prices.
"Since our last quarterly report, the global economy has stabilised somewhat - albeit at a low and declining level," said Dr Kalish. "Still, although there are no longer daily shocks, there are shocking things happening."
Across emerging markets credit availability, currency movements, and commodity prices are directly affecting growth. Frozen credit markets and plummeting currencies have led to a landslide of risk downgrades of former "growth champions" such as India, Vietnam, and Argentina, among others. In Frontier economies - such as Nigeria, Slovenia, Croatia, Kenya, Romania, Vietnam, and others - where the standard of living had begun to rise, the crisis has cut off needed capital to these countries, thereby slowing growth considerably.However, in the long run, companies will likely continue to find attractive opportunities in emerging nations, even if growth there slows temporarily. Through reform and strengthened legal, regulatory, and infrastructure development, developing markets could heighten their appeal for foreign investors.
The boom times for emerging market countries helped cover up underlying structural problems and delay necessary reforms across the world, providing opportunity for new growth paths, according to the report. Emerging and Frontier markets can become even more attractive investment targets by grasping the opportunity for reform and fiscal stimulus through infrastructure and social investment.
As for the rest of the world, governments are taking unprecedented actions to spur short-term recovery, and policymakers hope these large stimulus plans may make a longer-term contribution to economic well-being.
Dr Kalish remarked: "As a result, the longer term outlook for the economy is more promising as addressing the crisis of confidence is much needed. As was the case in the early 20th century, productive capacity has not been diminished, no physical or human capital has been destroyed, and our potential to increase living standards through innovation and new technology remains as great as ever. This will help underpin long-term growth."
Raphael Aloisio, advisory partner at Deloitte Malta, said: "Malta is obviously not immune to the impact of the global turmoil. However, the size and particular characteristics of the Maltese economy may lead to a number of new openings and opportunities in particular sectors including manufacturing and financial services.
"In view of the prevailing economic climate, investors are increasingly seeking lower cost bases which can offer greater efficiency and higher value added. Malta's product offering has these attributes and a focused collective approach by all stakeholders may actually lead to stronger medium-term growth," Mr Aloisio said.
The outlook for many developed and emerging economies in the Deloitte report reveal challenges and opportunities in the short term, including:
US: The Obama administration's economic stimulus plan includes tax cuts and funds for roads, bridges, healthcare, information technology, energy efficiency in buildings, as well as struggling state and local governments. Given the current impotence of monetary policy, policymakers hope the proposed fiscal stimulus plan will help spur economic growth and stability.
Eurozone: The region will see a continued slide due to the global credit crunch and declining global demand. However, financial market cleanups as well as long overdue structural reforms may see the EU come out of the recession stronger than before.
China: The country is experiencing a shocking sudden decline in economic activity. The government is attempting to offset weak exports with fiscal stimulus. China is fortunate, however, to have not borrowed heavily in global capital markets, making the impact of the credit crunch less potent.
Japan: After a decade of rebuilding, Japan is now experiencing massive declines in automobile production. As banks horde cash and push up money market rates, the commercial paper market has also frozen for smaller companies because of falling confidence and larger companies crowding them out. These and other factors will likely see Japan go through fairly severe tumult in the coming quarters.
India: The outlook is very mixed. There is evidence of economic activity slowing down; real GDP growth has moderated in the first half of fiscal 2008/2009, particularly in the manufacturing and infrastructure sectors. A planned fiscal stimulus is unlikely to reverse the slowdown or help India to achieve growth at 8 percent for either FY09 or FY10.
Brazil: With weaker demand in the US and China, a resulting drop in commodity prices, and volatile currency markets, Brazil is now experiencing a slowdown after strong growth over several years. Looking ahead, Brazil will experience a slowdown but a recession in the coming year is unlikely.
Russia: The low price of crude oil is hurting Russia's economic growth. At the same time, the global credit crunch as negatively affected Russia's financial markets. The result will be a marked slowdown and difficult choices for the government.
Middle East: Still highly depending on the price of oil, despite economic diversity, rapidly declining oil prices in the last few months will result in much slower economic growth.
The report reveals that although the current recession will be a setback for emerging markets around the world, these markets continue to have productive potential and unmet need for investment.
"The principal problem is confidence; in banks to lend, and in investors to tolerate risk," explains Ira Kalish, director of global economics, DTT. "That is why we see and will continue to see unprecedented government intervention during this crisis."
The report suggests a third wave is looming as new bank write-downs loom due to credit card defaults gaining in the United States. In addition, global trade is at risk due to the credit crisis. Also, commodity exporting countries face new problems due to the collapse of commodity prices.
"Since our last quarterly report, the global economy has stabilised somewhat - albeit at a low and declining level," said Dr Kalish. "Still, although there are no longer daily shocks, there are shocking things happening."
Across emerging markets credit availability, currency movements, and commodity prices are directly affecting growth. Frozen credit markets and plummeting currencies have led to a landslide of risk downgrades of former "growth champions" such as India, Vietnam, and Argentina, among others. In Frontier economies - such as Nigeria, Slovenia, Croatia, Kenya, Romania, Vietnam, and others - where the standard of living had begun to rise, the crisis has cut off needed capital to these countries, thereby slowing growth considerably.However, in the long run, companies will likely continue to find attractive opportunities in emerging nations, even if growth there slows temporarily. Through reform and strengthened legal, regulatory, and infrastructure development, developing markets could heighten their appeal for foreign investors.
The boom times for emerging market countries helped cover up underlying structural problems and delay necessary reforms across the world, providing opportunity for new growth paths, according to the report. Emerging and Frontier markets can become even more attractive investment targets by grasping the opportunity for reform and fiscal stimulus through infrastructure and social investment.
As for the rest of the world, governments are taking unprecedented actions to spur short-term recovery, and policymakers hope these large stimulus plans may make a longer-term contribution to economic well-being.
Dr Kalish remarked: "As a result, the longer term outlook for the economy is more promising as addressing the crisis of confidence is much needed. As was the case in the early 20th century, productive capacity has not been diminished, no physical or human capital has been destroyed, and our potential to increase living standards through innovation and new technology remains as great as ever. This will help underpin long-term growth."
Raphael Aloisio, advisory partner at Deloitte Malta, said: "Malta is obviously not immune to the impact of the global turmoil. However, the size and particular characteristics of the Maltese economy may lead to a number of new openings and opportunities in particular sectors including manufacturing and financial services.
"In view of the prevailing economic climate, investors are increasingly seeking lower cost bases which can offer greater efficiency and higher value added. Malta's product offering has these attributes and a focused collective approach by all stakeholders may actually lead to stronger medium-term growth," Mr Aloisio said.
The outlook for many developed and emerging economies in the Deloitte report reveal challenges and opportunities in the short term, including:
US: The Obama administration's economic stimulus plan includes tax cuts and funds for roads, bridges, healthcare, information technology, energy efficiency in buildings, as well as struggling state and local governments. Given the current impotence of monetary policy, policymakers hope the proposed fiscal stimulus plan will help spur economic growth and stability.
Eurozone: The region will see a continued slide due to the global credit crunch and declining global demand. However, financial market cleanups as well as long overdue structural reforms may see the EU come out of the recession stronger than before.
China: The country is experiencing a shocking sudden decline in economic activity. The government is attempting to offset weak exports with fiscal stimulus. China is fortunate, however, to have not borrowed heavily in global capital markets, making the impact of the credit crunch less potent.
Japan: After a decade of rebuilding, Japan is now experiencing massive declines in automobile production. As banks horde cash and push up money market rates, the commercial paper market has also frozen for smaller companies because of falling confidence and larger companies crowding them out. These and other factors will likely see Japan go through fairly severe tumult in the coming quarters.
India: The outlook is very mixed. There is evidence of economic activity slowing down; real GDP growth has moderated in the first half of fiscal 2008/2009, particularly in the manufacturing and infrastructure sectors. A planned fiscal stimulus is unlikely to reverse the slowdown or help India to achieve growth at 8 percent for either FY09 or FY10.
Brazil: With weaker demand in the US and China, a resulting drop in commodity prices, and volatile currency markets, Brazil is now experiencing a slowdown after strong growth over several years. Looking ahead, Brazil will experience a slowdown but a recession in the coming year is unlikely.
Russia: The low price of crude oil is hurting Russia's economic growth. At the same time, the global credit crunch as negatively affected Russia's financial markets. The result will be a marked slowdown and difficult choices for the government.
Middle East: Still highly depending on the price of oil, despite economic diversity, rapidly declining oil prices in the last few months will result in much slower economic growth.