In a post-crisis world where volatility and risks still loom large, we’ve brought together insights from around PwC that look at where emerging and advanced economies are headed and what companies are doing to maximise opportunities in these markets.
T/content/pwc/uk/en/issues/megatrends/shift-in-global-economic-power.html" target="_blank">shift in global economic power from advanced to emerging economies is a megatrend that’s transforming businesses, nations and societies. The world in 2050 could be one in which China and India stand with the US as the world’s biggest economies by far. Indeed, China could overtake the US this year, based on GDP at purchasing power parities. But it’s not just the growth of the middle class in emerging markets that offers opportunities, it's also the Global Emerging Middle - the four billion consumers with per capita income just below that of the middle class. And we think the next wave of growth of financial markets will take place in the E7 and could be worth $9 trillion (calculated in 2012 US dollars).
It can be hard to absorb the full implications of this shift. The real issue isn’t so much the speed of economic growth in emerging markets, but the rise in interconnectivity of these markets. This new paradigm of multinational competition provides opportunities for companies in emerging markets, but creates challenges for advanced economy firms seeking growth. The most pressing risk in a world with multiple centres of power is being cut out of the commercial loop as trade flows increasingly bypass developed market centres. And this requires companies to rethink their business and organisational models.
But the long-term shift in economic power to emerging economies is far from the whole story. Over the past couple of years, we’ve seen some emerging economies slowing down, which could be a sign of deeper structural problems than previously thought – including an acute skills shortage which is exacerbating infrastructure challenges. And elections in key emerging markets are heightening uncertainty in 2014, with questions about the extent to which the new governments, for example in India, can bring about the changes needed. Indeed, the challenge for emerging markets is how they can graduate to full advanced economy status over the coming decades – something which GDP growth alone won’t achieve.
Advanced economies, meanwhile, have been mending, with the eurozone having pulled back from the brink of disaster and the post-crisis recovery underway in the US and UK. Yet risks remain. The eurozone could be in danger of becoming a one-man band - Germany drove growth in Q1 2014 while large economies like France and Italy posted disappointing performance. Although it may seem like the eurozone crisis has ended, businesses must be ready to deal with future eurozone shocks. And very loose monetary policy in the US and UK could blow up asset bubbles and destabilise the recovery.
The difficulty in interpreting the many mixed signals, not only of the current environment, but also the long-term megatrends has heightened strategic dilemmas for business leaders. In order to make tough calls on growth, business leaders need to bring together all the different indicators and perspectives to judge the right way forward and create a more informed basis for decision making.
How are emerging and frontier markets affecting today's global economy, and what does it mean for the future?