Back to the complete issue
Tuesday, 4 February 2020

Trade growth between emerging economies is flatlining

Trade growth between emerging economies is flatlining: Expectations that sluggish growth in developed economies would stimulate intra-EM trade look to have been proven wrong as trade between emerging economies continues to flatline, Steve Johnson writes in the Financial Times. Although EM exports heading to other developing countries did leap from 24% in 1999 to 41% in 2013, they have since stagnated, and still stood at just 41-42% last year. This is despite the fact that EM economies have been expanding at a faster rate than those of developed markets, witnessing GDP growth of 4.6% a year compared to 2% in developed markets.

There are a host of possible reasons for this: Experts appear divided over whether the stagnation is the result of structural issues, such as the slowdown in Chinese growth, or whether it is cyclical. Some economists argue that with the global web of supply chains having been established in the 1990s, the barriers to intra-EM trade are too entrenched to be easily overcome. Others attribute the lack of growth to the weakness of EM currencies in recent years: while EMs have seen significant GDP growth compared to DMs, their share of global GDP in USD has largely stalled since 2013, when it stood at 39.2% after a rapid rise from 19.7% in 1999.

And there’s no consensus on whether it will pick up. If south-south trade is to occupy a larger proportion of global trade, there needs to be “positive reform momentum” in larger emerging economies to pull in more commodities from other EMs, argues strategist Maarten-Jan Bakkum. He is one of several economists to see the potential for strong intra-EM trade growth, partially catalyzed by the US-China trade war. The trade agreement currently being negotiated by Washington and Beijing may impact EM exports, however. And a reversal of globalization threatens to undermine outsourcing from DMs to EMs, as well as global growth as a whole. Meanwhile, many EMs may have also fallen into the “middle-income trap,” argues economist Thomas Costerg, in which a shift away from export-oriented models has impeded productivity.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt; Hassan Allam Properties (tax ID:  553-096-567), one of Egypt’s most prominent and leading builders; and Saleh, Barsoum & Abdel Aziz (tax ID: 220-002-827), the leading audit, tax and accounting firm in Egypt.