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WASHINGTON — Select countries in Asia, South America and Eastern Europe are emerging from recession ahead of the rest of the world, and these fastest-growing consumer economies are prime markets for brands to explore.
Retailers and brands have been expanding their footprint globally for years, and the trick has long been to select the right target market. Right now, many companies have their sights set on what is being called the “BRICs” — Brazil, Russia, India and China.
Coach Inc. said this month it will open a 7,000-square-foot flagship in Shanghai in April and also has plans for aggressive expansion throughout the Far East, while iconic Italian labels such as Ermengildo Zegna, which expects consumer demand from China and Brazil to bolster business, according to chief executive officer Gildo Zegna, and Dolce & Gabbana Group, which opened its first D&G boutique in Moscow this month, are exploring new horizons.
As the recession that rocked global markets last year bottoms out, consumer demand is bouncing back and retail and production expansion will increase, according to economists.
Global gross domestic product growth is projected at 2.7 percent in 2010, following an “unprecedented” 2.2 percent decline in 2009, and is expected to increase modestly to 3.2 percent in 2011, according to the World Bank’s “Global Economic Prospects-Crisis, Finance and Growth 2010” report.
The world’s emerging economies are recovering at a faster pace than rich and industrialized economies, and are expected to grow 5.2 percent in 2010, up from 1.9 percent in 2009, and by 5.8 percent in 2011, according to the report. The fastest-growing emerging economies in 2010, projected by the World Bank, are China, with an estimated 9 percent increase in output growth; India, forecast to expand 7.5 percent; Indonesia, with a 5.6 percent expected increase, and Bangladesh, seen growing 5.5 percent.
BRIC nations Brazil and Russia are forecast to increase output by 3.6 percent and 3.2 percent, respectively, in 2010. By contrast, growth rates of 2.5 percent are expected in the U.S. in 2010, while the Euro area is expected to expand 1 percent.
Jorg Decressin, head of the International Monetary Fund’s World Economic Studies division, said Asia, particularly China, has led the economic recovery. Eastern Europe, with the exception of Poland, has been “less successful with little sign of recovery,” and Latin America has more mixed results, “with countries like Brazil faring relatively well and others, like Chile, lagging behind.”
On a regional basis, East Asia and the Pacific are expected to grow 8.1 percent, while economic expansion is also expected from South Asia, at 6.9 percent; sub-Saharan Africa, 3.8 percent; the Middle East and North Africa, 3.7 percent, and Europe and Central Asia, 2.7 percent.
Hans Timmer, director of the World Bank’s Development Prospects Group, who joined Decressin on a panel of leading economists hosted by the Carnegie Endowment for International Peace here in early January, said the recovery is being driven by the “turn up in production” in emerging Asia and “to a large extent because of the [government] stimulus [measures] in China.”
“But then within the emerging economies there is a major differentiation,” Timmer said. “The kind of recovery that we are seeing in Asia is not there in Central and Eastern Europe despite the fact that indeed Poland shows relatively solid performance.”
Consumer demand, inextricably linked to employment rates and commodity prices, is also strengthening this year in many regions.
Andrew Burns, manager of the World Bank’s development prospects group and lead author of the 2010 global economic forecast, said Asia will continue to lead growth in consumption rates this year.
“With Asia growing at an 8 percent rate, that means [the region] will have consumer demand growth in the 6 to 7 percent range,” said Burns. “That means that the contribution of Asian consumer demand to global consumer demand is very high, notwithstanding the fact that they might have higher saving rates.”
Latin America, on the other hand, has a “much slower potential growth rate and therefore its contribution to [global consumer demand growth] is lesser,” he said.
In Asia, many consumers see themselves as “out of the woods,” said Uri Dadush, director of the Carnegie International Economics Programs. “The consumer is therefore doing relatively well. Generally, consumers in Asia were in good shape going into the crisis and had big savings rates. The governments were in good shape, and banks didn’t suffer the same problems that they did in the West.”
Despite a strong rebound in consumer confidence in most of Asia, Japan has not fared as well, Dadush said.