Why 'friend-shoring' poses risks for long-term EM growth

A form of regionalisation

Two decades of globalisation have boosted emerging markets and advanced economies. But last month, attendees to the World Economic Forum in Davos were left grasping for dictionaries and economics textbooks.

So-called ‘friend-shoring', a form of regionalisation in which economic partners prefer supply sources nearby, would materially affect EM growth. If the world splits into geopolitical blocks, the new trade constraints will lead to a reallocation of capital and a reduction in growth. Some countries would benefit more than others. On aggregate, we expect EM GDP growth to fall to around 3.7% per annum in the foreseeable future, compared to around 6.5% and 5.5% during the 2000s and 2010s, respectively. Key secular trends underpinning our revised trajectory precede the Covid-19 pandemic. T...