Economic growth
Emerging countries are currently experiencing economic growth that is around twice as high as that of industrialized countries.4 This high growth potential could mean that by 2050, six of the seven largest economies in the world will come from today’s emerging markets.5 In addition to China and India, countries such as Indonesia are also among the expected frontrunners.
The forecast increase in gross domestic product (GDP) in relation to the number of inhabitants is particularly impressive. While GDP per capita in countries like the USA or Germany could increase by around 50 percent by 2050, a tripling of GDP per capita is even believed to be possible for countries like India.6 This highlights the enormous growth potential in emerging markets and offers investors interesting opportunities.
However, it is important to note that investing in emerging markets also comes with higher risks. These countries are often subject to economic and political uncertainties that may affect investment returns. Nevertheless, emerging markets ETFs offer a promising opportunity to invest in emerging markets and benefit from their enormous growth potential. Individual risk tolerance and investment strategy must be taken into account and, if necessary, an exchange with a professional investment advisor may make sense.
Growth models
In the past, strong exports were the most important growth factor for many emerging countries. Although this ensured rapid growth, it also made them vulnerable to crises. However, in recent years there have been changes in this regard. Many emerging countries have begun to diversify their economies and are therefore less dependent on the global market and less vulnerable to external shocks.
A good example of this change is China. The export share of gross domestic product fell from 36 percent in 2006 to less than 20 percent in 2019.7 At the same time, private consumer spending rose significantly. Many other emerging economies have taken similar steps to make their economies more resilient and promote sustainable growth.
This change in economic structure is another positive factor for emerging markets. By reducing their dependence on exports and increasing their domestic consumption expenditure, they can create a stable foundation for sustainable growth.
Social potential
Another factor that speaks in favor of emerging countries is the average age of their population compared to industrialized countries: in many emerging countries this is significantly lower. For example, the average age in India is under 30 years, while in Germany it is over 45 years. This means that more workers are available to the economy in emerging countries – an important prerequisite for continued high economic growth.
In addition, many emerging countries are massively expanding their educational offerings. It is noteworthy that two Chinese universities are now among the top 25 educational institutions worldwide, while the best German university is only in 32nd place.8th Expanding the education system helps emerging economies produce a well-educated workforce that can be invaluable to the global economy.
Thanks to their high growth dynamics, their young population and the expansion of their educational offerings, emerging countries have the potential to play an increasingly important role in the global economy in the future.
4www.imf.org
5www.pwc.com
6www.imf.org
7data.worldbank.org
8thhttp://www.timeshighereducation.com/