Emerging markets renew competitiveness amid crisis

By Jennifer Blanke and Xavier Sala-i-Martin (China Daily)
Updated: 2009-09-11 11:03

The global economy continues to weather the most difficult climate for generations, with governments around the world taking an active stance in addressing the crisis. Yet while urgent action has been taken in many countries to support demand and head off a prolonged recession, this should not diminish their focus on long-term competitiveness fundamentals, and the potential impact that present actions will have on future growth.

Competitive economies are those that have in place factors driving the productivity enhancements on which their present and future prosperity is built. For the past three decades, the World Economic Forum's annual competitiveness reports have examined the many factors enabling national economies to achieve sustained productivity and economic growth.

These range from good governance and macroeconomic stability to the efficiency of factor markets, technological adoption and innovation potential, among others. Thus, while the present economic crisis is shorter-term in nature and primarily related to the business cycle, competitiveness is very much about a country's development potential over the medium to long term.

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While the developing world at first seemed to be spared from the fallout of the present crisis, many countries are now facing a slump in demand for their export products coupled with lower commodity prices, and significant reductions in foreign investment and remittances. Yet some emerging economies have been showing a higher resilience and even managing to enhance their competitiveness in the midst of the global downturn.

The performance of the large emerging BRIC (Brazil, Russia, India and China) economies is illustrative.

Three of the BRICs - namely China, India and Brazil - have confronted the crisis from a reinforced competitiveness footing. This has been achieved most notably through a combination of enhanced macroeconomic stability, and improvements to the functionality of goods, labor and financial markets.

In the most recent global competitiveness rankings these three countries improved their performances, in line with expert assessments of their longer-term growth prospects.

Yet not all economies have been putting into place the elements needed for enhanced productivity with the same zeal. Improvements in Brazil, China and India contrast with other emerging economies such as Russia. Russia is the lowest ranked of the four BRIC economies in the Forum's Global Competitiveness Index, falling 12 places this year, attributable to a deterioration in the efficiency of its goods and financial markets, combined with concerns about governance more generally.

Not surprisingly, the economic outlook for India, China and Brazil looks somewhat rosier. China and India have already started to recover rapidly (with the IMF expecting growth rates of 7.5 and 5.4 percent in 2009, respectively), and with Brazil contracting slightly (by -1.3 percent). Russia is experiencing a significant contraction this year (by -6.5 percent). This trend is expected to continue through 2010, with all four countries returning to growth, but Brazil, China and India continuing as the strongest performers.

Jennifer Blanke is Head of the World Economic Forum's Global Competitiveness Network and Xavier Sala-i-Martin is Professor of Economics at Columbia University.