Bulgaria, Morocco, Peru, Vietnam, Indonesia Best Positioned For Global Headwinds Says Study

As US-China trade tensions, tightening financial conditions and increasing political uncertainty cast shadows on global economic growth in 2019, five emerging countries stand out against the dimming background.

A study from trade credit insurer Atradius on the most promising emerging markets of 2019 points to high export opportunities in countries such as Bulgaria, Morocco, Peru, Vietnam, and Indonesia thanks to steady or sustained GDP growth, external buffers against volatility risks, and stable political conditions.

“Emerging markets are forecast to see slower growth in 2019: to 4.2% from 4.4% with increasing downside risks,” said Dana Bodnar, an economist at Atradius responsible for macroeconomic and country risk analysis. “Lower world trade growth, policy uncertainty, and oil price volatility are all clouding the outlook for emerging markets,” she said.

“The markets we have identified have high growth prospects with limited vulnerability to these global headwinds,” Bodnar said.

Sanctions against Russia and a deep contraction in Turkey are having spillover effects in Eastern Europe. However, the outlook remains positive in Bulgaria, whose economy is forecast to expand by 3.5% this year from 3.3% in 2018. A sustainable currency peg to the euro shields the country against macroeconomic risks, the report said.

Rising wages and low domestic interest rates make Bulgaria attractive to exporters of consumer durables, food, machinery, and chemicals. EU subsidies are boosting the chemicals as well as the machinery sector, whose imports rose 13.4% in January—September 2018 compared with the same period of 2017.

Despite the slowdown in China, the outlook for emerging Asia remains positive, driven by economic expansion in Vietnam and Indonesia (seen up 6.7% and 5.1%, respectively, in 2019).

High-wage growth and government liberalization policies are supporting the economy in Vietnam, the most export-oriented country analysed in the report. The free-trade economy makes it more vulnerable to the US-China trade dispute, the study shows. Diversification of trade away from China could boost the textile sector, which is forecast to expand 15% in 2019.

Some relief for emerging markets such as Indonesia comes from the US Federal Reserve’s shift to a more dovish stance, easing pressure for tighter domestic monetary policies, Bodner said.

Indonesia, which faces presidential and general elections in April, is benefiting from a stable political situation, job growth, rising income and higher public spending. Demand for food, chemicals/plastics, infrastructure and machinery is also seen rising in the ASEAN member, whose economy is predicted to grow 5.1% this year, according to Atradius.

Weak oil output growth and geopolitical tensions cloud the outlook in some Middle East and North Africa countries. Morocco, an international hub for trade and investment, is forecast to accelerate 3.3% this year compared to 2.8% in 2018, thanks to growth in the manufacturing sector, especially automotive.

Steps taken by Moroccan authorities to liberalize the exchange rate will help absorb possible external shocks, the study said. Tourism and the renewable energy sector also offer growth opportunities.

Peru remains a stable market in Latin America, despite ongoing political volatility in the region. The business-friendly environment and investment-grade sovereign credit ratings support the primary industry, construction, and consumer goods.

“Increasing trade diversification, strong investment growth, and dynamic domestic markets drive opportunities in these markets’ consumer-oriented trade sectors, as well as manufacturing and infrastructure in particular,” Bodnar said.