Fundamentals in emerging markets point to growth in 2008

The latest forecast from the International Monetary Fund, released in Washington this week, highlights that emerging markets will be “the engine of global growth” in 2008.

Chief Economist Simon Johnson expects GDP growth in emerging markets to average 6.9% this year. This includes consideration of growth decelerating from 11.4% to 10% in China, which should help to alleviate some concerns about its economy overheating. Momentum is sharply higher than that forecast in mature markets, with GDP growth of 1.5% anticipated for the US and Japan in 2008, and 1.6% for the eurozone. The IMF highlights that emerging markets are benefiting from more disciplined macroeconomic policy frameworks, which give scope for counter-cyclical measures if they are required. At the same time, commodity exporters are still enjoying the upswing of the pricing cycle and domestic demand is showing momentum.

Chris Palmer, Head of Global Emerging Markets at Gartmore, has $7.2bn of assets under management and highlights that investors should keep an eye on the fundamentals in current market conditions. “Investor sentiment, as reflected in market volatility, remains subject to severe over-reaction to economic data“, says Chris. “In this type of environment, one needs to maintain trading discipline and keep a tight focus on the underlying ‘real economy’ fundamentals.”