Opinion – Ruchir Sharma: What are the seven economic wonders of a worried world

In dark times like these, when commentators see only faults in most countries, it’s worth highlighting the few who challenge the prevailing pessimism. Here are seven that stand out in a world heading towards recession and higher inflation: Vietnam, Indonesia, India, Greece, Portugal, Saudi Arabia and Japan.

They share some form of combination of relatively strong growth, moderate inflation or strong returns in their equity markets – compared to other countries. By a fascinating coincidence, most of them also challenge the deep-seated prejudices that exist about the supposedly mediocre perspectives of certain countries, cultures and systems.

The least surprising name on my list is Vietnam, which serves as an example of communism that works. As geopolitical tensions with China mount, companies in the West choose to defend themselves through a “China plus one” strategy — and often that “one” country that serves as an additional source of supply is Vietnam.

By investing heavily in the infrastructure necessary for an industrial export powerhouse, and by opening its doors, Vietnam has been growing at nearly 7% a year, the fastest rate in the world.

Criticisms of Muslim countries’ economic difficulties have long ignored the most populous of them, Indonesia. Rich in resources, the country is benefiting from the global boom in commodity prices, but with its domestic market of 276 million consumers, it is not overly dependent on exports. Its debts are exceptionally low compared to other developing economies, and the Indonesian currency is exceptionally stable in a year in which most currencies have been falling sharply against the dollar.

The result is a benign mix of 5% growth with less than 5% inflation that makes Indonesia a shining example of economically competent Islam.

While India’s growth numbers always look better than they actually are because of its low base, the country’s economy will continue to be one of the fastest growing in the world. Policymakers have adopted enough reforms to lure investors who, frightened by China’s regulatory crackdown, are now gravitating toward the second-largest emerging economy. New investments in digital services and industry are bearing fruit and the vast domestic market insulates India from the global recession.

Some of the so-called “PIGs” [Portugal, Itália e Grécia] –countries that were central to the eurozone debt crisis a decade ago– are now reviving. Greece and Portugal have reduced their government deficits by more than 50%, and are less exposed than most of Europe to shocks in the supply of natural gas from Russia.

Greece has been getting a boost from the revival of foreign investment – ​​and tourism, whose share of its GDP (Gross Domestic Product) Covid had reduced from 20 to 15%. The default rate on bank loans is less than 10%, down from 50% during the crisis. Now growing at over 4% annually and with inflation falling rapidly, Greece is enjoying one of the healthiest recoveries in the region.

Portugal is in a similar position. The government wisely invests EU support funds, and is overhauling one of the continent’s most generous pension systems, while a special “golden visa” attracts a tide of wealthy new immigrants. Perhaps not coincidentally, the best performing stock market in the developed world this year is Lisbon. The acronym PIGs is in the past.

Saudi Arabia is leading a movement among the Persian Gulf countries to diversify their economy beyond oil. The reforms, which include easing restrictions on women, workers, tourists and nightlife, have helped spur projected growth to nearly 6% annually over the next two years.

The regime is pouring oil money into infrastructure, which includes ten smart cities that promise a futuristic, car-free version of urban life. Though heavily criticized for political repression, and with some distance to go on civil rights, the kingdom is also expanding economic freedoms, which puts this oil country at the forefront of green urban development.

The most surprising country on my list is Japan, where growth is really picking up. After being hounded by deflation for years, Japan is also one of the few countries that profit from the return of inflation – which is now just above 2% annually. Its supposedly weak corporate culture has increased profit margins.

Labor costs are now lower in Japan than in China. The cheap yen is boosting exports and could revive the market’s animal vigor as the long-delayed lifting of Covid restrictions draws back visitors.

Any one of these economies could, of course, stumble, and go into reversal from a turnaround in their leadership, political situation or the effect of complacency. Still, these countries are already the best performing equity markets this year. Amid well-founded concern about global prospects, we are seeing a new set of winners emerge.

Translation by Paulo Migliacci