A lot of internationally operating firms across the globe presented their second quarter or half-yearly financial reports recently. Results were at best mixed. It became clear that the developed countries did not yet leave the period of Global Crisis behind them. What created a link between all those reports - even when the presenting firms were in different industries - is the fact that Emerging Markets have become more important for all of them. And these results were not coincidental. The role of Emerging Markets as a catalyst for Global Growth is growing.
A recent research report written by two IMF researchers about growth in China concluded that until the beginning of this century the world could basically ignore Chinese growth. But its far-above-average growth profile has resulted in a situation in which we cannot ignore it anymore. Maybe China is not THE catalyst yet, like the US has been for many years but they are getting there. The IMF researchers conclude that the catalyst role is quite similar in importance to that of Oil Prices, with the 1970s Oil Crisis period as an example of what that could mean.
How important are Emerging Markets as catalyst for other countries?
In this contribution we will address this issue by looking at 5 factors that are important identifiers of the linkage between countries: Imports, Exports, Foreign Reserves (incl Gold), External Debt and Direct Foreign Investments Abroad. We do not look at portfolio investments, because these are normally more short-term and have a tendency to be less stable. We believe that this will imply that their influence - albeit important at the overall level - can be less easily linked to specific countries over longer periods of time. In paragraphs 2 to 6 we will separately analyze the five variables mentioned above. In paragraph 7 we will wrap things up and conclude.
2. Variable 1 : Exports
The first factor we analyze is Exports. In our analysis of exports we use the most recent data set from the CIA Factbook of the US Government to get information about the five most important export partners per country for the 100 most important countries in the world. Countries that were the largest export market for a specific other country received 5 points, the number 2 spot was awarded 4 points, number 3 received 3 points etc..down to 1 point for number 5.
The table below gives the top-20 and their total number of points. The USA and Germany are globally still the most important export markets. These countries are - not really surprisingly - the big buyers of international products and services. China is indeed the most important Emerging Market when it comes to international buying sprees, but the difference with the USA and Germany is still substantial.
If we would be treating the European Union as a kind of United States of Europe, Europe would be clearly more important globally than the USA. Next to Germany, countries like Italy, France, the United Kingdom, the Netherlands and Spain made it all into the global top 10 of export destinations.