Unprecedented challenges facing emerging markets in 2024

Date: 26 - 02 - 2024

Abu Dhabi

Source: Mufakiru Alemarat

Dr. Ali Mohamed Al Khouri

At a time when the world is suffering negative repercussions from international events and the problematic global economic environment, emerging markets are facing a complex matrix of unprecedented challenges. According to JP Morgan Research; The global economy will witness a general slowdown in its growth by the end of 2024, affected by the lack of liquidity and the difficulty of borrowing. Amundi Research Center’s analysis indicates that the bleak overall growth prospects for advanced economies will have ripple effects in emerging markets, which are, by their nature, sensitive to global liquidity dynamics and external investment flows.

This analysis is justified by several factors, including geopolitical tensions, especially in regions of vital importance to the world’s food and energy supplies, such as Eastern Europe and the Middle East, which create a state of uncertainty and negatively affect investment projects and growth rates. Then, the major economic slowdown in China will affect many economies that depend on trade with China, in addition to the increasing financial pressures in light of the increase in real interest rates. High levels of debt in developing economies, which makes debt servicing more difficult; The fragmentation of trade, resulting from increasing trade restrictions, and shifts towards “friends support” and “close support” strategies of transferring production to friendly and nearby countries, are factors hindering the recovery of global trade.

Sector analysis indicates that there will be variation in the performance of emerging market stocks as a result of the diversified nature of these economies. The Oxford Economics Institute believes that countries in Asia, such as China, the Philippines and Malaysia, appear to be in a good position for sustainable growth. But on the other hand, countries such as Argentina, South Africa, Turkey, and Brazil will face more difficult challenges and will witness weaker growth in the long term. This situation is due to several reasons, including measures related to labor systems, capital flows, and the decisive role of factors such as productivity growth, economic structure, and governance in shaping the economic destiny of these countries.

Inflation rates will remain the dominant concern, with inflation expected to average around 7.6 percent in all emerging markets this year. Although the inflation path will decline in parts of Asia and Latin America; It will also face potential headwinds from renewed pressures on food, energy and commodity prices, which together will pose economic and social challenges for emerging markets.

These data confirm the importance of reconsidering economic strategies in emerging markets. To find a balance between the requirements of economic growth, inflation management, and external vulnerabilities; This calls for a careful approach in dealing with monetary policy, and taking advantage of growth opportunities in specific sectors.

Here, central banks in emerging markets must develop monetary policies that respond to local economic conditions and global changes, especially those related to interest rates and fluctuations in the value of the national currency, and maintain sufficient foreign exchange reserves. The careful balance between these measures will be pivotal to stimulate growth, ensure economic stability, and investor confidence.

Emerging market governments must be aware of the importance of maintaining sustainable debt levels while investing in growth-enhancing sectors, which requires the strategic allocation of resources towards infrastructure, education and technology projects. As sectors that will stimulate growth in the long term; Structural reforms aimed at improving administrative and governance systems, enhancing business environments, and encouraging innovation will be vital elements in attracting foreign investment and enhancing competitiveness.

Digital transformation represents a unique opportunity for emerging markets. Investing in digital infrastructure and promoting an enabling environment for technological innovation can contribute to moving beyond traditional growth models. It is important that these investments focus simultaneously on skills development, entrepreneurship, and regulatory frameworks that support the digital economy.

Emerging markets must also be aware of everything that might undermine their role in global trade, and seek greater regional integration to increase market access, invest in regional infrastructure to facilitate smooth cross-border trade, and reduce trade barriers to serve common interests. The nature of emerging markets, which exposes them to external shocks resulting from financial fluctuations in global markets, fluctuations in commodity prices, or geopolitical tensions, requires building local capabilities, especially diversifying the economic base, strengthening social safety nets, and developing the financial sectors.

Economies are often more vulnerable to climate-related impacts, such as floods, droughts and extreme weather events, which can have devastating effects on agriculture, infrastructure and overall economic stability. In addition, the global shift towards sustainable and environmentally friendly economies may present challenges and opportunities for emerging markets. For example, countries that depend on fossil fuel exports may face economic challenges; Due to the decline in global demand for this type of fuel, while other countries could benefit from investments in renewable energy sources and green technology. International environmental policies and agreements, such as the Paris Agreement, increasingly influence trade and investment decisions. As a result, emerging markets must understand these complex dynamics, invest in climate resilience, transition to sustainable energy sources, and align with global environmental standards. This strategic axis could open new horizons for growth, attract green investments, and enhance sustainability in the long term.

International cooperation remains a key enabler for emerging markets; To access global financial resources, transfer technology, and achieve sustainable development in these economies. Collaboration with international institutions, multilateral banks, and development partners can provide a platform for accessing the support and expertise needed on this journey. To build understanding and enhance careful engagement with regional and international challenges and opportunities, sectoral dynamics, and strategic positioning in the global economic fabric.