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Roubini: Trouble in Emerging-Market Paradise

As Growth Slows in the BRIC, is the Emerging Market Dream Over?

Here’s an interesting article which picks apart some of the troubles the BRIC countries are going through. Livemint.com reports comments from Nouriel Roubini where he claims that excessive growth in these regions over the past few years could actually hurt the long-term progression of their economies. The article also mentions that it is unlikely that poor growth in the western world will remain in a bubble and that emerging markets are will sooner or later be affected. They also comment on the legislation that is holding back growth in many of these countries…

Indeed, China’s slowdown reflects an economic model that is, as former Premier Wen Jiabao put it, “unstable, unbalanced, uncoordinated, and unsustainable,” and that now is adversely affecting growth in emerging Asia and in commodity-exporting emerging markets from Asia to Latin America and Africa. The risk that China will experience a hard landing in the next two years may further hurt many emerging economies.

Roubini is also worried about the effect that ending of quantitative easing will have on these markets. Saying that the Fed has indicated that the end of low interest rates maybe just around the corner. Finally, and possibly most importantly, it is important to note that many of these countries are operating at a deficit…

Finally, while many emerging-market economies tend to run current account surpluses, a growing number of them—including Turkey, South Africa, Brazil, and India—are running deficits. And these deficits are now being financed in riskier ways: more debt than equity; more short-term debt than long-term debt; more foreign-currency debt than local-currency debt; and more financing from fickle cross-border interbank flows.

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For the full article, please click here.