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Wednesday, 8 June 2016

World Bank says EM catch-up delayed by decades, Morgan Stanley says EM keys are babies and bn’aires

Emerging markets’ drive to “catch up” with the incomes of more developed one has been set back decades due to their slowing economies and the commodities slump, according to World Bank Research on Tuesday, the Financial Times (paywall) reports. The bank downgraded its growth forecast for EMs due to worse than expected performance by commodity-exporting countries, expecting the global economy to grow 2.4% this year from a previous forecast of 2.9%. Emerging commodity exporters are set to expand only 0.4%, down from 3.2% in 2013.

The outlook for our corner of the world isn’t looking wonderful, largely on the back of low oil prices:Scroll down the report’s home page on your tablet or laptop to the “Data” section and toggle Middle East and North Africa. We’re going to beat the world average for GDP growth through 2018, but will lag both sub-Saharan Africa and emerging economies generally.

What does the report say about Egypt? Egypt is all over the MENA section (pdf) of the World Bank report, where the bank suggests that: “For oil-importing countries, a lower aggregate forecast for 2016 is due to slowing growth in the largest economy, Egypt, where expected growth of 3.3 percent in FY2015/16 is well below the authorities’ target of 5 percent. The weakness is due to a sharp downturn in tourism since October 2015, softening business sentiment, and the foreign currency shortage that plagued the economy for most of the fiscal year. The currency devaluation in March may boost the price competitiveness of Egypt’s exports, however.”

But the outlook on Egypt isn’t bad: While it notes that “growth is forecast to ease in Egypt, to 3.3 percent in fiscal year 2015/16 (ending June 30, 2016), 0.5 percentage point below the pace expected in January,” the World Bank notes says Egypt’s economy will grow at 3.8% in the current calendar year, then accelerate to 4.4% in 2017 and 4.6% the year after.

How can we do better? Morgan Stanley thinks the key to the success of emerging markets are babies and bn’aires, according to Bloomberg. “Have more babies. Control borrowing. Rear self-made bn’aires. Keep your currency cheap. That’s the advice of Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, for nations seeking to rise — or at least avoid a fall.”

Oh, and maybe stop the rise of AI. (See today’s Worth Reading for more on that topic.)

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