Real Estate Providing Thrust to Improved Economic Outlook in Emerging Markets

Various emerging markets across the globe have started to show green shoots of recovery and are reviving at a fast pace. The Asian EMs have shown the largest growth, swinging back to impressive numbers. The other EMs which have started to revive include those in Latin America, Europe, Africa and the Middle East. Despite the COVID-19 pandemic, these markets have displayed a significant recovery of the manufacturing PMI. The manufacturing PMI is a major indicator of economic growth, which evidently makes it a positive sign.

Several factors are actively uplifting the growth of the emerging markets. These include the weakening value of the USD, cyclical recovery, commodity upcycle and the strong recovery of China. The EM equities are inversely correlated to the commodity upcycle and the weakening of the USD. As both of these are long-term tailwinds, they are expected to result in a multi-year positive setup for the EMs.

The list of the major emerging markets in the world includes India. Here, the recovery is being propelled considerably by the real estate sector. Although Indian real estate has been affected badly, along with the rest of the economy due to the pandemic, it has started to revive at a fast pace. Property sales have recovered once again and are on a rising trend, along with the improvement of the buyers’ sentiment.

The real estate sector contributes to a major portion of the Indian GDP. A major section of the Indian population is also employed in various segments of the real estate industry. Thus, the effect of real estate on the Indian economy is profound. Initially, the pandemic had crippled the economic condition of potential property buyers, causing them to postpone or cancel their plans. Now with the government, the RBI, the banks and the developers working together to boost property sales, the effect has been negated considerably.

 The weakening of the USD is evidently one of the most significant factors driving the growth of the EMs. It is not only supportive for commodity prices, but also eases the stress from US funding. The differentials of the interest rates between the US and the EMs are expected to remain for a longer term and continue to boost the recovery of the EMs. This trend is expected to intensify, as the EMs would likely outperform the US, resulting in the structural deficit of the current account for the latter.

The Indian economy is expected to regrow at a rapid pace too, especially with the RBI taking measures like the slashing of repo rates. The real estate sector continues to play a major role in the growth of the national economy.