The World's Fastest Growing Economies

This article looks at the fastest growing economies over the 2021-2025 period among the over 130 countries covered by FocusEconomics.

1. India

Average growth 2021-2025: 7.2%

India is expected to record the fastest economic growth among the 132 countries covered by FocusEconomics over the next five years. While the country was hit hard by the Covid-19 pandemic and an ensuing harsh lockdown last spring, infection rates have fallen sharply in recent months, the domestic vaccination campaign is now underway, and recent economic signs—such as PMI readings and trade data—are encouraging. Surging consumption, investment and exports will spur growth in the coming years, while a supportive base effect in 2021 following 2020’s collapse will also play a role. Moreover, recently announced structural reforms, such as the aim of privatizing state-owned banks, allowing greater foreign participation in the insurance sector and market-oriented agricultural reforms, pose upside risks. That said, there are doubts over the political commitment to see the reforms through, while poor infrastructure will continue to impede growth. In addition, the decision in late 2019 to bow out of the Regional Comprehensive Economic Partnership (RCEP)—a free-trade pact recently agreed between ASEAN countries, Australia, China, Japan, New Zealand and South Korea—could hamper the external sector somewhat.

“With Covid-19 in check, the economy has already normalised faster than expected. Front-loaded and higher government spending, lagged effects of easier financial conditions, faster global trade and ongoing vaccinations should all combine to lead to a sharp pickup in cyclical growth. We reiterate our above consensus real GDP growth forecast of 13.5% y-o-y in FY22, vs -6.7% in FY21, with the budget adding upside risk to our FY23 projection (of 6.1%).” - Nomura

2. Bangladesh

Average growth 2021-2025: 6.9%

Bangladesh has weathered the Covid-19 crisis comparatively well: While growth momentum was hit last year by lower garment exports, robust remittance inflows and recovering industrial production have aided the recovery in recent months. Looking forward, rapid export growth and stronger domestic demand should drive the economy. Moreover, the country will continue to be blessed with favorable demographics: Past success at reducing fertility rates has seen the dependency ratio—the ratio of the working-age population to the population not in the labor force—plummet in recent decades, aiding productivity and boosting public coffers. That said, slow progress in vaccination poses a downside risk.

“The expected return of Bangladeshi workers to their workplaces abroad will prevent remittances from plummeting; this, in turn, will keep private consumption elevated. Higher investment spending stemming from a raft of ongoing infrastructure development projects and a pick-up in domestic activity will also support growth. The ongoing domestic recovery will be flattered further by positive base effects in the second half of the fiscal year, compared with the period of coronavirus-induced lockdown in the same period in 2020. A downside risk to our forecast comes from a potential rise in the coronavirus caseload in Bangladesh, which could prompt the government to deploy blunt containment measures once again. We do not expect growth to match the pre-pandemic range of 7-8% before 2022/23.” - Economist Intelligence Unit

3. Rwanda

Average growth 2021-2025: 6.7%

Rwanda’s economy has come a long way since the genocide of the early 1990s, which ripped apart the country’s economic, political and social fabric. Nominal GDP has risen from USD 2 billion in 2000 to USD 10 billion in 2019. While the Covid-19 crisis has certainly truncated progress over the last twelve months amid lower FDI and business closures, our panelists see real GDP growth averaging 6.7% from 2021 to 2025. Activity should be supported by surging investment. However, a fragile fiscal position, low domestic savings and expensive energy pose downside risks. Moreover, the country’s impressive development in recent decades has relied heavily on the leadership of Paul Kagame: An eventual end to his premiership could spell greater uncertainty.

“Regime stability appears assured over the short to medium term. The disruptions and economic impact of the Covid-19 pandemic does not appear to have altered public sentiment significantly, but challenges remain. Developments in and relations with neighbouring countries remain a potentially destabilising factor. Questions over President Paul Kagame’s succession remain important and factionalism within the Rwandan Popular Front (RPF) could arise over the long term. A managed transition to greater democracy remains a priority if the country hopes to avoid any shocks.” - Jee-A van der Linde, economist at Oxford Economics

4. Vietnam

Average growth 2021-2025: 6.7%

Vietnam has been one of East Asia’s star performers in recent years, spurred by a stable political climate, low labor costs and a relatively skilled workforce. The country has been highly successful at luring FDI, particularly into the fast-growing electronics and garments sectors. Vietnam is also an attractive base for firms looking to relocate from China due to the U.S.-China trade spat, and has signed a host of trade deals that boost market access for its goods, including recently the RCEP and an FTA with the European Union. Moreover, the country has handled Covid-19 in an impressive fashion, virtually stamping out the virus domestically, which allowed the economy to expand at one of the fastest paces globally last year. Over the coming years, the manufacturing sector should propel activity. However, a potentially slow recovery in visitor arrivals, exposure to external shocks and the fragile health of leader Nguyen Phu Trong pose downside risks.

“Successful and early containment of the Covid-19 pandemic locally has allowed business activities to gradually resume towards “normal” in Vietnam, and this is reflected in the sequential improvements in various data releases. While the upward trend of economic activities is likely to continue in 2021, this outlook is highly dependent on the containment of the pandemic globally and the rolling out of vaccines. […] Other factors in Vietnam’s favour include the spate of free trade agreements that would help drive exports and investments further. […] Vietnam’s current efforts in digital transformation and promoting e-commerce, as well as the dynamic and abundant workforce are further positive drivers for the outlook.” - Suan Teck Kin, head of research at United Overseas Bank

5. Cambodia

Average growth 2021-2025: 6.6%

Economic activity has been spurred in recent years by surging garment and construction sectors, although the economy was hard-hit by the pandemic in 2020 and likely contracted notably, amid income losses and lower tourism revenue. The economy should return to a strong growth trajectory this year as the impact of the pandemic fades and FDI remains strong, although high unemployment, tense relations with the EU—the key market for garment exports—and elevated twin deficits pose downside risks.

“Longer-term growth prospects remain strong, with […] FDI continuing to promote new sector development as global production relocates away from China. The forecast shows GDP growth staying close to 7% in 2023 as international demand recovers, fuelling a rebound in investment with a strong FDI component. Resultant productivity gains can enable domestic income growth which defuses discontent, even if politics remain repressive, and promotes expansion of net exports that keeps the current account deficit on its gradual downward course.” - Chris Portman, senior economist at Oxford Economics



Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.

Author: Oliver Reynolds, Economist

Date: February 16, 2021

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