Emerging Markets Weekly

The global credit crisis has taken its toll on economies of both developed and emerging markets, but the cost to fixing the financial systems of the developed world are destined to result in a major increase in gross debt to GDP for the advanced world economies. In contrast emerging markets are facing a lower expansion in budget deficits, higher growth trajectories, and falling ratios of debt to GDP.

China for example will incur a budget deficit of only 2.2 percent in 2009 despite a massive spending program aimed at boosting growth next year, and China is expected to see its economy grow over 6.5% in 2009 according to the IMF. The US in contrast is expected to produce a yawning fiscal deficit of 12% of GDP in 2009. Despite the massive spending increase, the US economy will contract in 2009.

More generally, the developed world economies will see large fiscal deficits in 2009 and 2010. The G-20 advanced economies are expected to see fiscal deficits of 7.9% and 6.8% this year and next. These Keynesian style spending initiatives will debt to GDP ratios in excess of 100% over the long term.

In contrast, the emerging markets will see falling debt to GDP ratios over the long term despite the global recession. The encouraging result here is attributed to the higher rates of economic growth across the emerging markets which will allow the emerging markets to grow their way out of rising fiscal deficits.