“China will not be the engine of growth as observed in the last two decades,” said Didier Borowski, head of macro policy research at the Amundi Investment Institute during an interview on 8 November 2023. He thinks that the recently announced fiscal stimulus (0.8% of GDP) will likely support a growth level of around 5% in Q4 and in the first half of 2024.
The great story in Indonesia is its demographic profile contrary to China
The real estate crisis is not over, and it will persist over 2024, impeding growth, which is in the process of transitioning towards 3%, according to Borowski. On the other hand, he opined that the economy will likely be better balanced, thanks to a greater reliance on domestic consumption. However, governance is a topic that remains in limbo in China.
Emerging markets: a heterogenous group
Borowski does not see the emerging market as a uniform mass or even regional blocks. “Being positioned on [the] EM market does not mean anything… one has to be granular and look at them on a country-by-country basis…whether it is for debt or equities.” For instance, India and Indonesia have sustainable growth profiles, contrary to China.
“India suffers from an infrastructure deficit but with a significant growth potential in the coming decade,” said Borowski. The same was already being said about India 20 years ago, as its governance--based on the rule of law--was seen as helping it to surpass China. Yet Borowski thinks that developments are now accelerating.
“The great story in Indonesia is its demographic profile contrary to China,” commented Borowski. The growth potential in Indonesia and India are increasing, as opposed to China, where it is slowing down.
Moreover, he observed a decorrelation of the economic cycle among countries in EM, justifying the case for geographical diversification in a portfolio.