EAGLES Economic Outlook: Cross-Country Emerging Markets Analysis

• The group of emerging countries which compose the EAGLEs and the Nest (our watch list of countries which could eventually become an EAGLE) is expected to create more than two thirds of total global growth in the next ten years. On the other hand, G7 contribution would be around 16 per cent.

• China, India, Brazil, Indonesia, Korea, Russia, Turkey, Mexico and Taiwan maintained their EAGLEs membership after BBVA Research updated its forecasts. Egypt became the first “fallen angel” entering the Nest group. Chile and Ukraine also joined this group, which means that there are now 15 economies in the waiting list to become an EAGLE.

• Changes in the composition of the EAGLEs and the Nest highlight the advantages of using a dynamic approach to evaluate which are the key leading economies in the emerging world.

• Macroeconomic vulnerabilities in the EAGLEs countries remain relatively limited, at least when compared with the developed world. However, the degree of vulnerability varies widely from country to country. The report offers a map of vulnerability by country.

• The special topics of the Annual Report pertain to China growing net credit position with the rest of the world, the growing relevance of the Gulf as a bloc and the decreasing economic importance of Africa within EM.

Summary

• Out of our 10 original EAGLEs, 9 have maintained their status after updating our forecasts. The fallen angel is Egypt, given our sharp downward revision to its growth prospects, especially in the short term.

• The 9 EAGLEs which have been confirmed are China, India, Brazil, Indonesia, Korea, Russia, Turkey, Mexico and Taiwan.

• No country from the Nest has managed to reach the status of an EAGLE yet.

• Egypt is now in the Nest, but also Chile and Ukraine. This increases the list of countries to 15 members. The other Nest economies – from larger to smaller - are Thailand, Argentina, Nigeria, Colombia, Poland, Vietnam, Pakistan, Bangladesh, Malaysia, South Africa, the Philippines and Peru.

• All in all, vulnerabilities are generally found to be limited although some warnings can be found.

• Regarding the growth model, fundamentals for productivity gains could be improved in China, India, Indonesia, Mexico and, to a lesser extent in Brazil and Russia. In addition, the labor force is expected to decline in Russia and to grow only marginally in China and Taiwan.

• On external demand risks, Russia, Turkey and Mexico are exposed to low growth in developed economies, while Brazil, Korea and Taiwan rely much more on China. Indonesia, Russia and Brazil are dependent on commodities.

• India and Brazil present disequilibria in both the fiscal and the external front with also a high public debt, while Turkey has a large current account deficit.

• Russia, as well as Asian EAGLEs with relatively low income per capita (China, India and Indonesia) face challenges on the institutional front as well as potential social unrest. Latin American EAGLEs (Brazil and Mexico) could also face potential brakes to growth stemming from low social inclusion. Thanks to a high income per capita (Korea and Taiwan) record a relative favorable situation.

• A new growth-risk pattern is stemming from the crisis, with higher dynamism and less vulnerabilities in emerging economies. Structural twin deficits are concentrated in developed markets, disequilibria that will be corrected at a low pace in the next years.

• The now well known process of shifting wealth from developed to emerging countries is true – in a massive way – for China but not for other EAGLEs. Other than the sheer size, this introduces another key differential characteristic between China and other key emerging economies.

• GCC countries as a block are worth watching since they match the EAGLEs criteria.

• Despite experiencing sound economic progress, Africa is still lagging behind. The only African country in the EAGLEs group, Egypt, has actually fallen from the list and South Africa is still far from getting into the club.