In its Emerging Markets Economic Outlook report, the macroeconomic forecasting consultancy highlighted a number of medium-term challenges facing Brazil, Russia, India and China.
The near-term outlook for emerging markets as a whole has improved in recent months, the group said. Capital Economics’ emerging markets GDP tracker suggest that growth bottomed out in the fourth quarter of 2012 and most emerging nations started 2013 with positive momentum.
However, the consultancy added that growth in the Brics is likely to slow over the coming five years, with part of this slowdown being the result of permanent rather than temporary factors.
China’s recovery is expected to peter out later in 2013 and the country’s new leadership has yet to announce any concrete steps to move the world’s second largest economy away from its reliance on investment spending and towards domestic demand, the report noted.
In India, policymakers also face the challenge of pushing through reforms that will allow the economy to maintain its strong growth rates of the past. “The package of reforms announced in late 2012 has raised hopes of a new approach, but these look likely to founder in the face of political opposition,” Capital Economics said.
The consultancy argued that Brazil is approaching the limits of its consumption-led growth model, adding: “Growth over the next decade will need to be driven more by investment, but this will require difficult structural reforms.”
Capital Economics also said the above risk applies to Russia. Meanwhile, resources-rich Brazil and Russia may both find that commodity prices fail to prop up their spending as they have done over the past ten years.
However, the forecaster said some emerging markets outside of the main names could expect to see healthy growth rates in the years ahead.
“While the Brics look set to slow, the outlook for other emerging markets is improving,” the report concluded.
“In Latin America, we think Mexico will outperform Brazil over the next five years. In Asia, we are bullish on the Philippines and Indonesia. Finally, in Africa, while South Africa is likely to struggle, we are upbeat on the prospects for Nigeria, Kenya and Ghana.”