Economic Growth Will Be Evident in Emerging Nations; EMERGING MARKETS

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Byline: ALUN THORNE Head of Business

The lion's share of global economic growth in the coming year will take place in emerging markets although their growth will slow, and the recovery of developed economies will ultimately drive global economic growth in the future.

According to the Deloitte Touche Tohmatsu Global Economic Outlook report for the first quarter of 2009, the current recession will be a setback for emerging markets globally but emerging markets will continue to have productive potential and unmet need for investment.

"The principal problem is confidence; in banks to lend, and in investors to tolerate risk," said Ira Kalish, director of Global Economics at Deloitte Touche Tohmatsu. "That is why we see and will continue to see unprecedented government intervention during this crisis."

The report suggests a third wave is looming as new bank write-downs loom due to credit card defaults gaining in the US. In addition, global trade is at risk due to the credit crisis. Also, commodity exporting countries face new problems due to the collapse of commodity prices.

"Since our last quarterly report, the global economy has stabilised somewhat - albeit at a low and declining level," he added. "Still, although there are no longer daily shocks, there are shocking things happening."

Across emerging markets credit availability, currency movements and commodity prices are affecting growth. Frozen credit markets and plummeting currencies have led to a landslide of risk downgrades of former "growth champions" such as India, and Argentina. In Frontier economies where the standard of living had begun to rise, the crisis has cut off needed capital, thereby slowing growth considerably.

However, in the long run companies will likely continue to find attractive opportunities in emerging nations, even if growth there slows temporarily.

Through reformand strengthened legal, regulatory, and infrastructure development, developing markets could heighten their appeal for foreign investors.

The boom times for emerging market countries helped cover up underlying structural problems and delay necessary reforms globally, providing opportunity for new growth paths. Emerging and Frontier markets can become even more attractive investment targets by grasping the opportunity for reformand fiscal stimulus through infrastructure and social investment.

As for the rest of the world, governments are takingunprecedented actions to spur short-term recovery, and policymakers hope it may make a longer-term contribution to economicwell-being.

Mr. Kalish added: "As a result, the longer term outlook for the economy is more promising as addressing the crisis of confidence is much needed. As was the case in the early 20th century, productive capacity has not been diminished, no physical or human capital has been destroyed, and our potential to increase living standards throughinnovation and new technology remains as great as ever. …