Emerging Markets: On the Edge?

The term 'Emerging Market' was coined by Antoine van Agtmael. Uncomfortable with the deeply condescending attitude of the West toward the so-called Third World, he came up with the idea in the 1980s that economic growth in the next few decades will largely be driven by 'Emerging Markets', like China and India. How prophetic his words have proved!



The Economist has come up with a terrific interactive graphic on the state of the Emerging Markets. However, the focus is less on how strong their economies are and more on whether they run the risk of overheating, i.e. slowing down of economic growth and its accompanying negative aftereffects.

Here's The Economist on how to use and understand the interactive feature.

This chart, based on an analysis by The Economist, ranks 27 economies according to their risk of boiling over. We take each economy’s temperature using six different indicators: the inflation rate, the unemployment rate relative to its ten-year average, GDP growth relative to trend, excess credit (the growth in bank lending minus the growth in nominal GDP), real interest rates, and the forecast change in the current-account balance in 2011.

Countries are first graded according to the risk of overheating suggested by each indicator (2=high risk, 1=moderate, 0=low). For example, if the growth in excess credit is more than 5% it scores 2 points, 0-5% 1 point, and below 0% nil. The scores from each indicator are then summed and turned into an overall index; 100 means that an economy is red-hot on all six measures.

There are seven hot spots where a majority of the indicators are flashing red: Argentina, Brazil, Hong Kong, India, Indonesia, Turkey and Vietnam. In particular, the growth in credit is sizzling in all seven. Argentina is the only economy where all six indicators are on red, but Brazil and India are not far behind. China, often the focus of overheating concerns, is well down the rankings in the middle of the amber zone, partly thanks to more aggressive monetary tightening. Russia, Mexico and South Africa are in the green zone, suggesting little risk of overheating.

Click on the tabs at the top of the chart to see rankings on each of the six indicators.

If you wish to read more on this, click here.



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