FEW dispute that 2015 has been a dismal year for emerging markets. Gross domestic product growth has fallen for a sixth consecutive year as once-dynamic economies that generated the lion’s share of global prosperity for more than a decade stumbled on harder times.

The question, therefore, of how the developing world will fare in 2016 is crucial. Unusually, there is some fairly positive news. Most economists’ forecasts envisage either a slight recovery in average emerging market (EM) GDP growth, or at least a stabilisation at close to 2015 levels.

‘EM finds its feet’, ran the title of a Goldman Sachs outlook report for next year. “After six years of sequentially declining EM growth, our economists expect a pick-up . . . [with] robust growth rates in Mexico and central and eastern Europe — specifically Poland and Hungary — and a more mixed picture in Asia,” the report added.

The International Monetary Fund (IMF) concurs, seeing a recovery in average EM GDP from a forecast 3.9pc this year to 4.5pc in 2016. Consensus Economics, which surveys panels of leading economists, sees Latin American growth rallying from minus 0.8pc this year to 0.2pc in 2016, eastern Europe rebounding from minus 0.2pc to 1.7pc and Asia (except Japan) easing from 5.8pc to 5.7pc.

But analysts say the prospect of such a recovery is hardly a cause for celebration. Structural weaknesses that have weighed on EMs are largely unrepaired, China’s engines are sputtering, debt levels are surging and much of the developing world is vulnerable to a potential tightening of US monetary policy.

Growth rates predicted to pick up next year but structural frailties are a cause for concern

“At this time, there are few triggers for a strong growth rebound,” says Bhanu Baweja, strategist at UBS.

For this reason, analysts are not seeing a return of the locomotive powers that drove the global economy in the early 2000s, when EM countries contributed roughly 75pc of global GDP, according to Goldman Sachs. Indeed, on average, EM GDP growth rates will exceed those in developed countries by just 2.1pc next year, down from more than 7pc in 2009, according to Mr Baweja.

One of the main canaries in the coal mine is debt. As a percentage of GDP, the private sector debt (households and companies) in EM is now well above 100pc, higher than the levels seen in developed markets on the eve of the 2008-09 financial crisis.

This not only makes several EM countries highly vulnerable to rising interest rates by the US Federal Reserve, it also means EM companies spend so much of their income servicing debts that they have little left over to invest.

Such a predicament is particularly pronounced in China, where corporate debt has risen to 160pc of GDP, or $16.1tn — twice the level of the US, according to Standard and Poor’s, the rating agency. These debts, which the agency predicts will surge to $28.5tn in 2019, increase the potential for defaults.

John-Paul Smith, partner at investment advisory firm Ecstrat, says China could prove to be one of the weakest links in the EM universe next year.

“EM economies will continue to be weaker than consensus expectations, led by China, where much of the corporate sector is on the brink of a liquidity crisis,” Mr Smith adds.

Nor does trade offer much solace. Global trade contracted in the first half of 2015 — representing a reversal from the two decades until the financial crisis, when trade values across EM countries climbed 10-fold to $10tn in 2008.

Structural issues afflicting developing economies may be even more fundamental than heavy debts, chronic industrial overcapacity and dwindling trade dynamism. To some analysts, an EM ‘growth model’ — which relied on lending out current account surpluses to developed economies to fuel a consumer binge in the west — is broken.

The shaky economic foundations of Europe and Japan, coupled with US consumers’ inability to recapture pre-crisis appetites, is frustrating the world’s globalising energies. Whereas in the 1990s, every extra dollar of GDP spawned three dollars of trade, the ratio is now just one to one, according to Goldman Sachs.

Published in Dawn, Business & Finance weekly, December 7th, 2015