Wednesday, October 21st, 2015
Nariman Behravesh, IHS’ chief economist, doesn’t mince words about where companies can expect to find growth in the coming years, or even decades. “The emerging market is still the future,” he said.
Lately, however, the economies that comprise what’s considered the emerging market have looked a little worse for wear, rattling investors and making exporters anxious. “The outlook for the emerging world is shaky,” Behravesh said. “Commodity prices and export revenues are hurting, and separately both their stock markets and currencies are getting hit pretty badly.” This has created a situation where finances have become much more problematic for the region; credit conditions have tightened, adding another hurdle that these economies will have to vault over on their way to relative stability.
“Over the last four years there’s been a significant deceleration in emerging market growth. They’re growing at about half the rate they were four years ago,” Behravesh said. “What you’re seeing in the developed world—the U.S., Europe, Japan—is just a very gradual acceleration of growth, so that’s not where the threat is coming from; the threat is from the emerging markets.”
Despite the risks, according to Behravesh, it’s important to differentiate between short-term volatility and long-term growth prospects. “The emerging market is going through a process of catching up with the developed economy,” he said. “For them to realize that future, it’s going to take a while longer. Companies that want to do business in the emerging world and make that a part of their growth strategy will have to be patient because it’s going to take a while.”
“This has to be a long-term strategy. This is not a short-term strategy for growth,” Behravesh added.
For the short-term what companies are doing to hedge their bets is bringing business back to where growth is fastest, namely Europe and particularly the U.S. “That’s what we’re seeing now,” Behravesh said, noting that companies shouldn’t expect this reshoring of business back to familiar shores to carry on in perpetuity.
“This is temporary,” Behravesh said. “The question is how temporary.”
For more insights from Behravesh and a host of other plastics and petrochemical industry experts, register today for the Global Plastics Summit, Oct. 28-30 in Chicago.