The spell is over for emerging countries. The future is not as bleak as the collapse of the currencies of many of them - Argentina and Russia in the lead - makes us fear and it is precisely devaluation that can stimulate the competitiveness of the more export-oriented emerging countries, but growth is not infinite and above all not it will be more double digits. Most emerging countries will soon return to growth, but not as before. The precious report attached to the latest Prometeia Forecast Report, presented fresh off the press just yesterday in Bologna by Paolo Onofri and enriched by the intervention of one of the leading BRICS experts such as Andrea Goldstein of the OECD, could not have been more timely.
So what should we expect from emerging countries after the black Friday of the financial markets? Tapering, explains Prometeia, has exploded previous contradictions and caused an outflow of capital from emerging countries towards more industrialized countries (73 billion dollars only in the period May-September 2013) with a depreciation of assets between 8 and 10 % and a devaluation of the currencies of emerging countries which already had economic situations in a deterioration phase. The strengthening of the euro and the dollar accentuated the difficulties of the emerging countries and aggravated the exchange rate, rekindling the dreaded indicator of inflation. Hardest hit by capital outflows and currency depreciation were India, Indonesia, Brazil, Thailand, Turkey and now also Argentina, Russia and South Africa. Some of them have reacted promptly and China and Korea have even managed to attract capital from abroad while the South Americans have paid the most.
The devaluation itself, by fueling competitiveness and giving new life to exports, could however – according to Prometeia – compensate for the drop in domestic demand, "especially if the industrialized economies were to actually resume their growth path". And again: "The end of Quantitative Easing 3 and the increase in US interest rates could have direct negative effects for capital flows towards Emerging Countries, but they will also be the consequence of a more important improvement in the economy, they could decrease uncertainty and herald growth also in the emerging countries themselves, restoring their attractiveness”.
In essence, "the cycle of Emerging Countries certainly cannot be said to be separated from those of industrialized Countries" even if nothing will ever be the same again. And even if the greatest among the Emerging will have to deal with themselves first, as Goldstein recalled. Which means, to limit ourselves to the so-called BRICs, that Brazil will have to contend with the risk of inflation, Russia with the business climate (corruption, political interference and so on), India with low productivity and China with the shadow banking.
But there is another very interesting point that emerges from the new Emerging scenarios presented by Prometeia and Goldstein. If China slows down and if Russia, Brazil and India will have to face the deterioration of their respective growth prospects, the locomotives of the economy will have to be sought elsewhere and the new growth poles will have to be found in the countries of the Pacific Alliance (Chile, Peru, Colombia and Mexico) and in Southeast Asia Minor (from Indonesia to Thailand, from South Korea to Singapore).
