By 2025, six major emerging economies—Brazil, China, India, Indonesia, South Korea, and Russia—will account for more than half of all global growth, and the international monetary system will likely no longer be dominated by a single currency, a new World Bank report says. As economic power shifts, these successful economies will help drive growth in lower income countries through cross-border commercial and financial transactions.
The report, Global Development Horizons 2011—Multipolarity: The New Global Economy, projects that as a group, emerging economies will grow on average by 4.7 percent a year between 2011 and 2025. Advanced economies, meanwhile, are forecast to grow by 2.3 percent over the same period, yet will remain prominent in the global economy, with the euro area, Japan, the United Kingdom, and the United States all playing a core role in fueling global growth.
According to the report, emerging economies that used to rely on technological adaptation and external demand to grow will have to make structural changes to sustain their growth momentum through productivity gains and robust domestic demand.
The shift in economic and financial power toward the developing world has important implications on corporate financing, investment, and the nature of cross-border merger and acquisition (M&A) deals. As more deals originate in emerging markets, South-South FDI is likely to rise, with most of it going into greenfield investments, while South-North FDI is more likely to target acquisitions. As they expand, more developing countries and their firms will be able to access international bond and equity markets at better terms to finance overseas investments
To sustain growth and cope with more complex risks, economies that are home to emerging growth poles need to reform domestic their institutions, including in the economic, financial, and social sectors. China, Indonesia, India, and Russia all face institutional and governance challenges. Human capital and ensuring access to education is a concern in some potential growth poles, particularly Brazil, India, and Indonesia.
(Adapted from WB press release)
In South Asia, India is the growth pole, while in East Asia and the Pacific it is China. In Eastern Europe and Central Asia it is Russian Federation, in Middle East and North Africa it is Saudi Arabia, in Latin America and the Caribbean it is Brazil and in Sub-Saharan Africa it is South Africa.