Emerging markets will be the growth engine for the global economy in the decades ahead.
That statement has been heard a lot in recent years, formed on the belief that rapid population growth, favourable demographics, improving education levels and strong economic growth will see income and consumption levels increase.
As developed nations age, emerging markets will take up the economic slack, providing a smooth transition that keeps global growth on track, or so people hope.
And it would be convenient to label all emerging nations as the same, but Jeremy Pomeroy, global economist at HSBC, says the picture is far more complicated than that.
“On the one hand, we have countries such as The Philippines, Nigeria and Malaysia whose young, fast-growing populations should continue to provide a demographic dividend to growth for years to come,” says Pomeroy.
“On the other, countries such as China, Korea, Russia and Poland have demographics that could drag on future growth.
“In many of these countries the demographic picture is worse than for Germany or Japan, widely seen as having some of the most unfavourable demographics in the developed world.”
The epic table below, supplied by HSBC, reveals what Pomeroy is talking about. It tracks when each nation has, or will, reach a certain median age. Those countries at the top of the chart have favourable demographics, while those at the bottom are unfavourable.
According to Pomeroy, ageing emerging nations run the risk of seeing their population get old long before they becomes rich, classified by HSBC as a median age of 40 and income of US$15,000. The grey bar in the table above is when these nation’s are forecast to become “rich”.
This, to Pomeroy, poses a number of challenges.
“Ageing populations are likely to drag down potential growth and government finances may become more strained. Just when these countries need to spend more on reforms and infrastructure, funds may have to be diverted to provide pensions and healthcare,” he says.
As the largest emerging market in the world — both in population and economic size — Pomeroy believes China is one nation that runs the risk of getting old before it gets rich.
“China’s median age is expected to rise above 40 in 2024, but despite a fast pace of growth, the country may not become rich until around the mid-2030s,” he notes.
“The problem for (China) is that the slowdown in fertility rates has happened long before GDP per capita has crossed into wealthy territory, meaning that slow population growth has become ingrained.
For economic growth, fiscal imbalances and, as a consequence of both, government debt levels, this is hardly promising news, particularly in light of concerns about the outlook for the Chinese economy at present.
Though Pomeroy admits that this may strike a reasonably negative tone, he believes that there are still plenty of reasons to be optimistic about emerging nations, including China.
“Thanks to a low starting point, improvements in the rule of law, healthcare and education, the potential is still there for fast per-capita growth rates, even in the face of shrinking working-age populations,” he notes, adding increased urbanisation, a push towards employment in the services sectors and generally low levels of government debt also add to case for optimism.
While that has been occurring, and will likely continue to occur, for a while yet, it’s unlikely convince those with other less optimistic views that something more sinister lies ahead.