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EY Rapid-Growth Markets Forecast July 2013
Welcome
Welcome to EYs latest Rapid-Growth Markets Forecast. Its a time of change for us with a refreshed brand and logo and so, too, for the worlds economy. Rajiv Memani Despite a period Country Managing of increasing Partner - India confidence in the prospects for the global economy, it seems that this era of turbulence and unpredictability is not yet behind us. Policy-makers in advanced economies are seeking to reduce spending and at the same time maintain public services to stimulate growth. The picture is a little brighter in rapid-growth markets (RGMs). Its not as if these economies are contracting far from it but many have seen their currencies weaken in recent weeks as investors baulk at what they see as higher risks and the knock-on effect of reduced quantitative easing in the US and elsewhere. Recent announcements by the Federal Open Market Committee (FOMC) and the consequent increase in bond yields have affected rapid-growth markets significantly, weakening their currencies, stock markets and the local investment climate. In an increasingly globalized world, the economic policies of both mature and rapid-growth markets need to be aligned to drive growth across all markets.
So what can we expect from RGMs over the next few months? Is the fragility and volatility set to continue or will stable and assured growth be restored? In the short term, we believe that growth prospects have been subdued by a variety of factors. Low investments in the major economies havent helped, nor has the disappointing recent performance of world trade. Similarly, low interest rates and strong credit growth are failing to deliver a significant boost to domestic demand in RGMs, and there are also concerns over investment returns and the pace of reform. As a result, we now expect a slower recovery in RGMs, with growth of 4.6% in 2013, similar to the expansion in 2012. There is better news to report for the medium term. The main drivers of strong growth in emerging markets ranging from an expanding middle class, particularly in Asia, to the further development of trade flows between RGMs such as Turkey and the Middle East remain intact. This means that RGMs will grow by close to 6% in 201516, much faster than the advanced economies. Another factor safeguarding the progress of RGMs is increased levels of foreign direct investment (FDI), which has the potential to transform economies and boost technology and skills. This is evident across areas such as Africa and Turkey. FDI flows also tend to be more stable than portfolio flows into equities or bonds. Furthermore, the likelihood of slower but more balanced growth in China will help to drive higher consumption rates across Asia, creating
opportunities for new businesses to expand. So its a mixed picture. Rapid-growth markets continue to prosper, that much is certain. But their path forward, in the short term, is far from easy. With some corrective measures like further liberalization and economic reforms, higher growth can be expected in the medium term. In addition to navigating the macro trends that will continue to shape and influence the global economy, much will depend on their own resolve to uphold their respective growth performance. For business, managing risk is essential, but so is understanding how to adapt to rapidly growing markets that are transforming themselves with help from investments and usage of information and communications technology. Here we see a range of interesting and innovative business models grow. EYs Rapid-Growth Markets Forecast offers timely analyses of emerging markets and the role they are playing in the global economy. I hope you find the data and insights in this report useful. By exploring how their progress affects the business landscape, we aim to help you identify opportunities in a world that is changing fast and, as our new brand value says, help to build a better working world. To learn more about rapid-growth markets, their business environments and to access local contacts, please visit ey.com/rapidgrowth.
Contents
Published on 11 July 2013
3 Highlights
54 Detailed tables
Highlights
Investors reassess risks as recovery in global trade and investment shows signs of faltering
Investors have been reassessing the risks in rapid-growth markets (RGMs) relative to prospects in the advanced economies. And many RGM currencies have weakened over the past few weeks. Investment order indicators in the major economies have been relatively soft in recent months and world trade growth has been subdued. Low interest rates and strong credit growth are providing less of a boost to domestic demand growth in RGMs, with some concerns over whether the returns to new investments are falling and the pace of reform is slowing. These stumbling blocks have dented near-term growth prospects in RGMs. As a result, we now expect a slower recovery in RGMs, with growth of 4.6% in 2013, similar to the expansion in 2012. The main drivers of strong growth in emerging markets, however, remain intact. And over the medium term, RGMs will grow by close to 6% in 201516, much faster than the advanced economies.
The increasing use of mobile phones presents new business opportunities, allowing people even in remote locations to manage their finances electronically. In addition, the growth of private credit is enabling new businesses to expand.
FDI flows are helping to diversify economies, allowing some RGMs to leapfrog technologies
Strong FDI flows, easier access to credit, and the growth of entrepreneurship is fuelling the development of new businesses and sectors within RGMs and helping to diversify economies. Africa, for example, is attracting more FDI, particularly from Asia, and not just to natural resources. The service industry is developing fast in the continent, with finance, real estate and insurance representing more than 20% of South Africas GDP.
Despite increased uncertainty, emerging markets remain attractive. Upsets of various kinds have overtaken many countries in recent months, including falling equity prices, currency instability and public unrest. Even as some fastgrowth economies mature, differentiation between countries is becoming more marked across our selection of 25 rapidgrowth markets (RGMs). Directors and executives seeking to assure the international future of their businesses must weigh, with increasing care, not only where they invest, but also when, and how. Perhaps the biggest surprise of the first half of 2013 has been the weaker-than-expected recovery in trade and investment, and its impact across our RGMs. Caution is the watchword. We now believe that growth across RGMs will average 4.6% this year, a fraction weaker than the 4.7% they achieved during 2012. That is a disappointment. In our April 2013 RapidGrowth Markets Forecast, we were looking for growth of 5.1% this year across our markets, rising to 6% next year. We now think the real uptick will be deferred until 2014. After a solid performance this year, we expect the average growth rate to surge to 5.7% in 2014 and 5.9% in 2015. Social uncertainty is real, but increasingly universal. Business must learn to live with surprises. Managing risk is more than ever a key skill for the RGM investor.
forever. The flood of developed-world cash seeking higher returns in emerging economies has slowed or reversed. Third, social unrest has sprung suddenly to life in some RGM stars. Few predicted street battles in Turkey, protests triggered by bus-fare increases in Brazil, nor rage in Indonesia as the Government pledged to reduce fuel subsidies. In the era of social media, discontent can burst out abruptly and be relayed rapidly around the world.
The growth story in Asia remains compelling. Indonesia, Malaysia, Thailand and Vietnam are all forging ahead. The Middle East also has good momentum and growing scale and sophistication. Chile and Colombia are pacemakers among our Latin American leaders. Sub-Saharan Africa continues to catch up, with sterling progress from Nigeria and Ghana though there's a sad showing from South Africa. The mire is in Central and Eastern Europe, where the Czech Republic, Ukraine and Poland are stalled by the recession-hit Eurozone. But we expect them to accelerate next year, delivering on their promise in 2015. With every quarter that passes, these markets command a bigger share of the world economy. Their expanding middle classes consume more goods and services. In a more open global economy, mobility of people and money has opened a vast gamut of economic activity to business. As RGM economies develop, domestic producers and exporters from both developed and emerging markets fight a three-corner contest to satisfy new demand for goods and services.
Slower-than-expected growth has reined in surging demand for many commodities, from metals and ores to foodstuffs. Some mining company stocks have already weakened in anticipation of lower prices and earnings. Reduced export of natural resources may weaken the exchange rates of exporting countries. On the other hand, companies in sectors that are big users of commodities such as engineering and construction may benefit from more affordable inputs. Effective management of fluctuations in exchange rates is imperative. By mid-June, many emerging market currencies had experienced notable falls against the US dollar, including the South African rand, the Mexican peso, Brazils real, the Indian rupee and the Turkish lira. Such falls will be important for companies with subsidiaries in multiple countries, and those managing international supply chains. Manufacturers importing inputs into countries with falling exchange rates and those exporting products or services from these countries may see costs rise and revenues fall. Businesses in countries with strong currencies may obtain cheaper inputs and windfall export profits. But for truly multinational businesses, the consequences will be complex. If they endure, changing currency valuations will affect internal transfer prices, balance sheet valuations and reported profits. Businesses need to be on the alert. Companies contracting long-term projects, for example in the infrastructure arena, may need to take care over pricing policies and currencies, ensuring that contracts protect the profitability of agreements from sudden currency swings. Concerns over currencies and finances may also prove more acute in countries that rely upon footloose funds to finance current account deficits, such as Indonesia and Turkey. But short-term currency swings need to be set in the context of long-term rebalancing. Many RGM currencies have hardened in recent years and the Chinese renminbi has appreciated by 35% over the past decade.
Box 1
Technology is fundamentally changing both mature and emerging economies. In some emerging markets today, technology usage is growing substantially faster than in developed markets. This is especially true in the smartphone segment, but many RGMs are also enjoying a surge in the number of internet users. These areas are closely related, as rises in internet usage are partly a function of the way smartphones and tablets provide increased connectivity in emerging markets. In addition, traditional, PC-based internet connections are also on the rise in many RGMs. Whatever the device, internet user growth in RGMs is striking. The worldwide increase in 2012 was about 8% year on year.1 But within that, user growth in China was about 10%, with more than 50 million internet users added, and in India it was about 26%.2 Uptake in India is expected to continue to rise: there were 138 million internet users in 2012; this could grow to between 348 million and 600 million users in 2017.3 Meanwhile, mobile broadband subscriptions are growing especially fast in Africa, Asia-Pacific and the Middle East. According to the most recent International Telecommunications Union data, mobile broadband subscriptions grew 40% worldwide from 2010 to 2011, with developed markets growing 23% year on year, and RGMs growing 78%.4
Broadly speaking, two types of online technology business opportunities appear to be emerging in RGMs. Some are followers, which replicate the business models that first appeared in developed markets. Others are more novel, adapted to particular consumer or business needs in RGMs. Examples of the former occur in China and Russia, which have their own email, search engine and social networking champions, as well as e-commerce companies bred to meet local needs. But more original business models are also developing in emerging markets. A striking example is M-Pesa, a rapidly growing mobile phone-based money-transfer service in Africa that started in Kenya. M-Pesa allows users to make deposits and withdrawals, transfer funds, and pay bills. It offers flexible financial services in countries where banks and road infrastructure are still developing. Digital ID cards, like those being introduced in India to facilitate good government, might also enable an online industry to overcome many of the challenges otherwise associated with identifying customers. By enabling financial transactions, and the identification of parties to transactions, technology has the potential to increase business and market efficiency significantly across RGMs, where information infrastructure is often lacking. As internet access spreads in the emerging world, it becomes possible to launch businesses that can reach many millions of consumers, but do not have the high entry costs involved in brick-and-mortar shops. Low barriers to entry for online enterprises may also lead to increased competition. This has the potential to reduce profit margins and prices, but expand the number of potential customers. Its important to note that technology products and business models are moving in both directions between developed markets and RGMs. Leading technology companies from developed markets are looking for growth in RGMs, and many RGM leaders are seeking to expand beyond their own national boundaries. Some have found it hard to enter technology markets in mature economies, though a notable exception has been in communications equipment for
Mary Meeker, Internet Trends @Stanford Bases, Kleiner, Perkins, Caufield, Byers, 3 December 2012. 2 Ibid. 3 India will lead in internet protocol traffic growth, Business Today, 29 June 2013; http://businesstoday.intoday.in/story/india-will-lead-in-internet-protocoltraffic-growth/1/195587.html 4 Measuring the Information Society, International Telecommunications Union, 2012; http://www.itu.int/dms_pub/itu-d/opb/ind/D-IND-ICTOI-2012-SUMPDF-E.pdf?bcsi_scan_dc00907d16dca697=0&bcsi_scan_filename=D-INDICTOI-2012-SUM-PDF-E.pdf
network operators. But emerging market technology champions, producing networking equipment, laptops or even smartphones, have been very successful in selling equipment in other emerging markets, where customer requirements or behavior may resemble those in their home markets. Online retailing has great potential in markets where shopping malls are scarce but connectivity is expanding apace. Its development has often been held back, however, by inadequate postal services, lack of infrastructure for financial transactions and cultural issues of trust in societies that are largely cashbased. Pioneering online retailers have reacted creatively, often setting up cash-on-delivery logistical systems. Business-to-business markets are also developing differently or at least at different speeds. In Latin America, 39% of leading companies are estimated to have switched to cloud computing, compared with 28% in Asia-Pacific, 19% in the US and just 12% in Europe.5 Cultural concerns in Europe and the US about privacy and security may contribute to slower adoption there. But developed market companies may also be held back by the cost and complexity of switching from legacy systems, while companies in RGMs are likely to have no such issues standing between them and the lower capital costs and increased flexibility of cloud computing. What are the implications of these developments for technology companies? Clearly, some innovations and business models travel well and can be extended to, or replicated in, RGMs. But local conditions may limit their relevance, or open opportunities for other innovations and business models that are better adapted to local conditions. In developing technology business models in RGMs, understanding local constraints and culture are a critical part of success.
Emerging markets lead the way in cloud application adoption, TCS News & Events: Press Release, 26 March 2012; http://www.tcs.com/news_events/press_ releases/Pages/Emerging_markets_lead_way_cloud_application_adoption.aspx
Direct investors in RGMs must be prepared to join the trend, ensuring their overseas subsidiaries participate in burgeoning south-south trade flows. That may require substantial revision of supply chains, and the development of regional business hubs. What brakes will apply to this process? Interest rates are already beginning to rise in many RGMs as markets anticipate the end of quantitative easing in the US. That will raise the cost of borrowing modestly in emerging economies and slow investment, but probably not by much. We may also see weaken demand for commodities, paring revenues in RGMs that are dependent upon energy and commodity exports. On the other hand, rebalancing may spur lower exchange rates in some RGMs, spurring their competitiveness. The long-term trend is clear. Today, our 25 RGMs account for perhaps a third of global GDP. By 2040, their share of global GDP may be two-thirds: an appetizing opportunity for RGM investors whether foreign or domestic.
Financing growth
The development of financial services is simultaneously both a critical growth enabler and a business opportunity in RGMs. EYs Banking in emerging markets: Seizing opportunities, overcoming challenges, studied 10 of our 25 RGMs and identified how financial market opportunities emerge in these markets. Its findings were revealing. As frontier RGMs, such as Nigeria and Vietnam, begin to monetize, small deposit and savings accounts and small loans begin to develop, but banks are usually focused on city dwellers. In transitional RGMs, such as Colombia, Egypt and Indonesia, people seek finance for consumption, housing and education, while businesses demand loans for investment, and capital market development, accelerates. Leasing companies and credit card companies vie with banks for business.
Box 2
In established RGMs for example, Malaysia or Turkey demand for consumer credit surges and companies seek longer-term, more complex financing and risk-management products. Domestic banks battle regional and international rivals. Banks keen to compete in these markets must pursue four essential strategies: Simultaneously develop simpler low-cost products to attract the unbanked, and more sophisticated products to serve an emerging middle-class and commercial customers. Build alliances with financial and telecoms companies, in order to access capital, expertise and technology to reach the unbanked via mobile phones. Strengthen their credit-risk management as they start to serve ill-documented customers. Invest in technology so that they can reach more customers, and offer a wider range of products. Though the solutions and strategies may be different in each country, many lessons are transferable.
Construction and materials: local by nature, the sectors expand rapidly with prosperity. Transport: vehicle maintenance increasingly requires software skills and scale. Air travel holds promise, but regulatory hurdles and lack of airport infrastructure are impediments. Education and health: no longer the preserve of states alone. Technology and novel business models promise more affordable private sector solutions to speed economic transition.
Thinking differently
RGMs are defined by the pace of their economic development. Yet rising prosperity is a single index. Often they are also undergoing substantial social, political and technological change. But, like economic expansion, inflation, exchange rates, and any other economic measure, change in these fields often proceeds in fits and starts. And it may be even harder to measure or anticipate. Today, that is true of many emerging and developed markets. Businesses that hope to prosper in emerging markets must understand the hopes and expectations of the consumers and societies that are their customers. Only then can they hope to contain the risks from bus-fare riots to currency valuations that are inherent in investing in a fast-changing world.
Building capacity
Financial flows in the form of loans, remittances or FDI can finance investment in production capacity, from small to large. FDI traditionally focused upon production for export of commodities or of manufactured goods made competitive by low-cost labor. But more balanced patterns of development are today creating entrepreneurial opportunities across a swathe of sectors. In frontier markets, opportunities arise especially in: Food production: commercial-scale production, food processing, packaging, distribution and retail. Successful companies are often obliged to pursue vertical integration from farm to fork, and can deploy their skills horizontally across adjacent products.
10
Box 3
11
15
10
12
6 30 20 10 0 -10 -20 -30 -40 3 Taiwanese exports to China (mainland) (right-hand side)
GDP growth in China slowed to 7.7% in Q1 2013 and the HSBC manufacturing Purchasing Managers Index (PMI) for June dropped to a nine-month low. New orders fell, suggesting this weakness has persisted in Q2. Against this background, we have lowered our GDP growth forecast this year to 7.5%, from the 8.2% anticipated in our April Rapid-Growth Markets Forecast.
Trade growth in China slowed significantly in May, with exports expanding by only 0.6% year on year. This followed several months in which trade data from Chinas partners was increasingly out of line with Chinas reported data, as Figure 2 highlights. It seems likely that Chinese export and import data for the previous months were somehow overstated and underlying demand thus overstated.
12
Managing the transition toward higher consumption, and a greater role for the financial and other service sectors in China, will not be easy. An aging population will start to place strains on Chinas growth from 2017 and the rapid pace of urbanization could lead to more growth-limiting environmental pressures. If China fails to reach its potential, growth could slow much more sharply. As Box 4 shows, a weaker China has significant implications for other countries in Asia and worldwide including countries sensitive to commodity prices that Chinese demand has supported. In Brazil and India, where the need to increase spending on infrastructure is pressing, there is a danger that the pace of structural reform could also slow.
In Poland, as Figure 3 shows, the economy held up well relative to the Czech Republic in 2011 and H1 2012. The Government cut spending in H2 2012 in order to reduce public debt as a share of GDP below 56%. The Polish economy has slowed very sharply since and the central bank cut interest rates for the seventh time in this cycle in June. We now expect GDP growth of less than 1% this year. However, this should mark the bottom of the current cycle and growth of 2.5% is forecast for 2014, helped by monetary stimulus. Czech fiscal spending fell between 2010 and 2012 as the Government was very prompt at introducing austerity measures to reduce the budget deficit to below 3% of GDP. But while we still expect GDP in the Czech Republic to fall by around 1% this year, there were promising signs in the Q1 national accounts that consumer spending and investment are beginning to improve and consumer confidence is now on a clear upward trend. According to Ernst & Youngs European attractiveness survey 2013, Poland overtook Russia as the leading destination in Central and Eastern Europe for FDI in 2012. The report also identified the Czech Republic as a popular FDI destination. Wages in Poland and the Czech Republic are still substantially lower than the more developed Western European countries, while their infrastructure and business environments have improved markedly in recent years. Much of this FDI has gone into labor-intensive sectors, such as heavy industry, and this should support solid employment growth over the medium term, partially offsetting lower public sector employment. Loose monetary conditions and good access to credit should support growth in most RGMs as the year progresses. But with business and consumer confidence still relatively weak, the recovery in RGMs will be more gradual.
13
Box 4
US
Germany
Brazil
Russia
India
China
14
Figure 5
Although our central forecast is for a smooth transition, there is a risk that Chinas potential growth could slow quite sharply. Pollution, water shortages and other environmental pressures could force a slowdown in the pace of urbanization and cause a fall in effective labor participation rates.
15
Box 4
As the table below shows, if growth in China slowed to 5% by 2014, this would have serious repercussions for the other RGMs. Slow growth would likely hamper some of the efforts to improve infrastructure and investment in Brazil and, as a result, growth in Brazil could slow to just over 1% by 2014. South Africa would be particularly affected not only by weaker demand from China, but also by lower prices for its commodity exports, such as copper. As a result, growth could slow to 2% next year. With a large domestic market and relatively few commodities exports, India would be somewhat less affected. But nonetheless, the recovery would be more subdued.
Table 1
100
80
60
40
20
16
In the US, despite the recent sell-off, equity markets remain well above levels of one year ago, delivering wealth gains for US consumers. In contrast, many emerging market equities have performed poorly over the past year. The overall MSCI index is below the levels at the start of last year. An improving housing market, a competitive manufacturing sector and low interest rates will help drive the recovery in the US from 2% growth this year to 3% in 2014.
Figure 8
130
120
US S&P 500
110
100
90
The Eurozone is expected to start growing again from mid-2013, but overall a decline of 0.6% is still forecast for 2013, followed by very sluggish growth of only 1.4% a year in 201417. Improving competitiveness and strengthening demand from the US and emerging markets will start to boost Eurozone exports over the coming year.
17
Financial market volatility and subdued investment and trade will keep growth in RGMs at 4.6% in 2013, similar to the growth in 2012. But we expect improving domestic demand and a gradual recovery in world trade to drive a strong recovery in RGMs to 5.7% in 2014.
Figure 9
GDP growth
% Annual growth 7 RGMs Advanced economies Forecast
The authorities in Brazil abandoned a tax on foreign investments in domestic bonds (which had been designed to discourage capital inflows) and in early June interest rates were increased by an unexpectedly high 50 basis points. The depreciating exchange rate could mean higher import prices at a time when inflationary pressures are already significant. We expect further interest rate rises this year, but there are also some more positive signs. Investment recovered significantly in Q1 2013 and imports of capital goods reached a five-month high in April. Brazils recovery will eventually pick up steam, with growth rising above 4% in 2014.
18
19
Figure 12
20
Growth in Turkey accelerated to 3% in Q1 2013, driven by rising consumer spending and investment. The recovery reflects the major easing in monetary policy since the middle of last year that is starting to feed through the economy. Meanwhile, consumers real incomes are benefiting from lower inflation as well as still-buoyant employment growth. However, the uncertain political situation in Turkey, following large demonstrations in Istanbul and other cities, is affecting the economic outlook. The exchange rate and Turkish capital markets fell sharply at the end of May and in early June in response to news of a large widening in the external deficits and sizeable political demonstrations. But assuming the political situation improves, we forecast Turkey to grow by around 5% per year over the longer term. Nonetheless, Turkey remains vulnerable to a reversal of portfolio flows, pressures on its exchange rate and the implications for the external borrowing of its banking sector.
Figure 13
21
Figure 15
300
250
200
150 4
100
50 0
Conclusions
A weaker recovery in trade and investment across RGMs will keep the outlook in 2013 subdued. Growth is expected to be close to 4.6%, similar to growth in 2012. Currencies have weakened across many RGMs in recent weeks, as investors have become more cautious about the relative risks in emerging markets. Uncertainty around the tapering of quantitative easing in advanced economies has added to financial market volatility. Slower but more balanced growth in China will help to drive higher consumption rates across Asia, creating opportunities for new businesses to expand. Rising FDI flows are helping to transform trade opportunities across Turkey, the Middle East and Africa, with particular expansion in financial services. Rising domestic demand and growing world trade will drive a strong recovery in RGMs, to close to 6% in 201516. This will far outpace growth in the advanced economies.
As Box 5 shows, the increasing use of mobile phones in Africa presents new business opportunities, allowing people even in remote locations to manage their finances electronically. This is also increasing access to private credit, which is in turn enabling new businesses to expand. A growing middle class, particularly in Asia, provides the market and catalyst to fuel new business growth.
22
Box 5
23
Box 5
Technological advances welcome new opportunities and faster growth in Africa (continued)
as the penetration of modern technology offers new opportunities
Mobile telephone penetration is now over 50% in every major sub-Saharan country.
Figure 17
more than 80% of mobile users now use their phone for monetary transactions. Education: Internet penetration is still relatively low, but as technologies develop the rise in virtual learning could bring huge benefits in terms of knowledge and skills. The rapid spread of information is already having a positive impact on the quality of health care, for example.
In development terms, this means that economies can leapfrog over older technologies (such as fixed telephone lines) which would have been prohibitively expensive to install. In South Africa, for example, the penetration of fixed telephone lines is just 8%, and in Nigeria and Kenya it is less than 1%. But with mobile penetration at 60% or more in these countries, the majority of the population now has access to modern communications. This has several advantages: Banking and Insurance: Mobile banking has surged in recent years, allowing people even in remote areas to manage their finances electronically. Industry sources estimate that there are 1.7 billion people worldwide without bank accounts, but with access to a mobile phone. In Kenya, a net commodities importer, annual growth still averaged 4.6% between 2002 and 2012, and
24
Table 3
Corruption score
2002 South Africa Nigeria Ghana Kenya Zambia Angola Tanzania Ethiopia Cote DIvoire Turkey Indonesia 27 16 39 19 26 17 27 35 27 32 19 201213 29 27 45 27 37 22 35 33 29 49 32
Scores measured from 1 to 100, where 100 is least corrupt. Source: Transparency International.
Table 4
Infrastructure score
2006 South Africa Nigeria Ghana Kenya Zambia Angola Tanzania Ethiopia Cote DIvoire Turkey Indonesia 4.04 2.26 2.98* 2.75 2.75 2.07 2.65 2.34 3.33* 3.46 2.72 201213 4.13 2.28 2.87 3.09 2.85 not available 2.27 2.65 3.1 4.38 3.75
* Earliest available datapoint is 2008. Scores measured from 1 to 10, where 10 is the best. Source: Global Competitiveness Report, World Economic Forum.
25
Argentina Brazil Chile Mainland China and Hong Kong special administrative region (SAR) Colombia Czech Republic Egypt Ghana India Indonesia Kazakhstan Korea Malaysia Mexico Nigeria Poland Qatar Russia Saudi Arabia South Africa Thailand Turkey Ukraine United Arab Emirates Vietnam
26
Kazakhstan
China
Korea
Mexico
India
Vietnam Thailand
Chile
Argentina
25 rapid-growth markets
We define rapid-growth markets on the basis of three key criteria:
Proven strong growth and future potential Size of the economy and population Strategic importance for business
Figure 18 shows the GDP growth of our 25 rapidgrowth markets over the last 10 years, comparing these with the leading advanced economies. Together, they represent a significant proportion of the world economy (Figure 19).
Figure 18
Figure 19
50
40
30
20
10
% annualized growth rate, 200212
0
6 7 8 9 10 11 12 13 14 15
1988
1992
1996
2000
2004
2008
2012
2016
2020
27
Argentina
for example, prevent the purchase of the investment goods and raw materials needed by industry. Despite these problems, we forecast GDP growth averaging over 4% in 2014 and 2015. The authorities also need to contain rising inflation, which will be exacerbated by the weakening exchange rate. High inflation harms competitiveness and erodes purchasing power. While official CPI inflation is expected to average 11% this year, the true rate may be over 30%. Argentinas longer-term prospects would benefit from measures to address these structural issues, as the country is rich in natural resources and has a well-educated workforce.
Figure 20
Figure 21
Table 5
Argentina
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 8.9 9.8 -0.4 31.1 10.7 4.1 -1.6 40.8 444.7 10,897.6 2012 1.9 10.0 0.1 29.9 12.0 4.6 -2.5 41.2 475.1 11,540.7 2013 2.7 10.8 0.2 30.8 14.0 5.3 -1.8 41.5 462.3 11,134.7 2014 3.6 10.3 -0.1 31.1 12.4 6.0 -1.3 41.9 470.5 11,235.3
Source: Oxford Economics. 2015 4.6 9.7 -0.1 30.3 9.5 6.5 -0.9 42.2 496.2 11,753.2 2016 3.9 9.5 -0.1 29.3 8.4 7.0 -0.6 42.6 523.9 12,308.1
28
Brazil
Despite the moderation in domestic demand, inflationary pressures remain elevated. Inflation stayed at 6.5% in May, just inside the central banks 4.5% (+/-2%) target. The central bank has already raised the SELIC overnight rate to 7.5%, and we expect three further 25 basis point increases this year. Reforms to tackle the labor market and government bureaucracy, as well as invest in infrastructure, would significantly improve the economic environment. But the Government is increasingly focusing on short-term fixes to boost demand. With an election due next year, this is unlikely to change much in contrast to other countries in the region, such as Mexico. We expect growth to average more than 4% per year to 2016.
Figure 22
Figure 23
-2 Net exports -4 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Table 6
Brazil
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 2.7 6.6 -2.1 11.8 11.7 1.7 -1.4 196.9 2,476.4 12,577.6 2012 0.9 5.4 -2.4 13.6 8.5 2.0 -1.0 198.6 2,255.0 11,354.7 2013 2.4 6.3 -3.7 13.4 7.7 2.0 -2.0 200.3 2,353.4 11,750.6 2014 4.1 5.8 -3.1 13.4 8.6 2.0 -1.9 201.9 2,608.0 12,916.6
Source: Oxford Economics. 2015 4.2 5.1 -2.7 13.4 8.7 2.2 -1.9 203.5 2,660.1 13,072.5 2016 4.0 4.5 -2.3 13.5 8.7 2.3 -2.0 205.0 2,745.9 13,394.1
29
Chile
the economy should start to regain momentum soon and that inflation may be back to 3% in a years time particularly if the weaker peso persists and the labor market stays tight we do not expect further easing beyond this small cut. In 2014 and beyond, we expect annual GDP growth to be broadly in line with the regional average at 4%4.5%. The macroeconomic and financial stability of Chile should provide a stable backdrop for investment. Expanding mining capacity will boost copper exports to the emerging markets. But slowing growth in the working age population could hinder growth in the long run, while energy infrastructure bottlenecks must be addressed to achieve our forecast growth rates.
Figure 24
Figure 25
110
100 8 90 6 80
70
60 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Table 7
Chile
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 5.8 3.3 -1.3 36.1 4.9 483.7 1.5 17.3 251.2 14,528.1 2012 5.6 3.0 -3.5 37.5 5.0 486.5 0.6 17.4 268.3 15,381.6 2013 4.5 1.5 -2.9 36.9 4.8 481.8 0.6 17.6 289.3 16,445.0 2014 4.7 3.0 -2.8 36.0 4.8 489.0 0.1 17.7 310.8 17,518.4
Source: Oxford Economics. 2015 4.6 3.2 -0.4 34.7 5.6 496.1 0.3 17.9 335.9 18,777.7 2016 4.4 3.0 0.4 33.8 5.8 505.3 0.4 18.0 358.2 19,868.6
30
Figure 26
Figure 27
Hong Kong: Stockmarket Hong Kong: stock market
China: inflation
% increase per year 24 20 16 12 8 4 0 -4 -8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Food prices
32,000
28,000
24,000
20,000
16,000
12,000 Manufacturing producer prices Consumer prices 8,000 1999 2001 2003 2005 2007 2009 2011 2013
Table 8
Mainland China
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 9.3 5.4 1.8 8.9 5.4 6.5 0.1 1,363.7 7,335.6 5,379.1 2012 7.8 2.6 2.3 9.1 4.6 6.3 -1.8 1,372.3 8,239.5 6,004.2 2013 7.5 2.8 3.2 9.2 4.2 6.2 -1.8 1,380.8 9,184.6 6,651.7 2014 8.0 3.7 2.6 9.0 4.2 6.0 -1.2 1,389.1 10,463.8 7,533.0
Source: Oxford Economics. 2015 7.9 4.0 2.5 8.8 4.3 5.8 -1.2 1,397.0 11,828.5 8,467.3 2016 7.7 3.4 2.3 8.7 4.8 5.7 -1.3 1,404.6 13,348.8 9,503.5
31
Colombia
Several factors have held back recent activity, however. The economy was hit in the early part of 2013 by a series of strikes and supply problems in the coal and coffee sectors, which contributed to a decline in industrial output. And exports have been hit by falling commodity prices and a strong exchange rate. As these temporary hitches pass, the prospects for future growth will improve. Foreign investment in oil, coal and mineral extraction is rising, which will fund exploration and development. These activities account for two-thirds of exports, so should help bolster the economy especially as world trade begins to pick up again later this year.
Figure 28
Figure 29
Inflation
% increase per year 45 40 35 30 25 20
Forecast
Forecast
Western hemisphere
Colombia
15 10 5 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
-2
-4
Colombia
-6 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Table 9
Colombia
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 6.6 3.4 -2.8 22.9 4.0 1,848.1 -2.0 46.9 336.3 7,170.1 2012 4.0 3.2 -3.1 21.5 5.0 1,796.9 -1.9 47.5 369.8 7,781.6 2013 3.9 2.1 -3.6 23.9 3.4 1,860.2 -2.2 48.1 379.0 7,872.4 2014 4.4 3.2 -3.6 26.4 4.3 1,970.8 -1.9 48.8 385.4 7,904.6
Source: Oxford Economics. 2015 4.2 3.3 -3.5 28.8 5.5 2,089.6 -1.8 49.4 391.2 7,925.0 2016 4.0 3.3 -3.3 30.8 6.5 2,195.0 -1.7 49.9 400.1 8,013.7
32
Czech Republic
We think that austerity measures will slow this year, as the budget deficit should fall below 3% of GDP. However, there is some political uncertainty that must be resolved. Growth will pick up to 2.2% in 2014, driven mainly by exports. By 201516, we expect GDP growth to be 3%, with this pace likely to be maintained throughout the rest of the decade. The aging population will cause the labor supply to decline and will slow productivity growth. The current growth model of the Czech economy is very dependent on the external sector exports, export-related investment and external financing. Given the weak medium-term outlook for the Eurozone, neither exports nor foreign direct investment are expected to return to pre-crisis growth rates in the medium term.
Figure 30
Figure 31
Unemployment
% 11 10 9 8 7 6 5 4 Forecast
Consumption
Table 10
Source: Oxford Economics. 2015 2.7 2.1 -3.4 54.9 1.0 22.1 -2.4 10.5 191.2 18,197.4 2016 3.0 2.1 -3.3 54.8 1.0 22.1 -2.0 10.5 201.1 19,164.4
33
Egypt
US$16b in May, this was only because of a US$2b deposit from Libya. The underlying trend is still falling. Reserves still cover less than three months imports. The budget deficit is likely to fall only slowly from the estimated outturn of close to 12% of GDP in 201213. Inflation picked up to 8.2% in May, due to higher food and fuel costs. We expect it to average 9% this year and about 10% in 2014. Our growth profile remains unchanged and sees GDP rising by just 2% in 201314 after estimated 1.7% growth in 201213. We expect any real recovery to be delayed until 2015, when growth is forecast at 4.5%.
Figure 32
Figure 33
-5
-8
-17
-20
Table 11
Egypt
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 1.8 10.1 -2.4 15.5 14.0 5.9 -9.8 82.5 231.1 2,799.9 2012 2.2 7.1 -1.3 15.0 13.0 6.1 -10.8 83.9 254.7 3,033.8 2013 1.7 9.0 -2.5 16.7 12.3 7.0 -11.9 85.4 246.1 2,882.7 2014 2.0 10.1 -2.7 16.7 11.5 7.4 -11.5 86.8 261.3 3,011.4
Source: Oxford Economics. 2015 4.5 8.0 -3.1 15.9 10.0 7.5 -10.3 88.2 287.3 3,257.9 2016 5.9 6.0 -2.9 15.2 9.0 7.7 -9.6 89.5 314.2 3,509.9
34
Ghana
spending ahead of the elections at the end of 2012, which saw the budget deficit balloon to 12% of GDP. With imports surging and the currency under pressure, the Bank of Ghana raised its key interest rate by 250 basis points in H1 2012. In addition, having kept policy unchanged in H2 2012, it then raised rates again by 100 basis points (to 16%) in May 2013, in response to rising price pressures. And despite high gold and cocoa prices, strong imports meant that a widening trade deficit and rising outflows of services and income lifted the current account deficit to almost US$5b in 2012 (over 12% of GDP). The deficit should fall slowly in the coming years as oil exports climb.
Figure 34
Figure 35
Inflation
% increase per year 60 Ghana Forecast
50
40
10 8
30 6 20 4 2 10 Africa 0 -2 1993 1996 1999 2002 2005 2008 2011 2014 1990
Ghana
Sub-Saharan Africa
0 1990
1993
1996
1999
2002
2005
2008
2011
2014
Table 12
Ghana
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 14.4 8.7 -8.9 28.8 1.5 -3.1 25.0 39.2 1,569.3 2012 7.1 9.2 -12.6 36.9 1.8 -12.0 25.6 38.6 1,509.2 2013 6.9 9.0 -9.0 40.0 1.9 -9.2 26.1 41.6 1,591.5 2014 5.9 7.3 -4.7 39.5 2.0 -6.9 26.7 45.7 1,709.0
Source: Oxford Economics. 2015 5.5 6.0 -2.3 37.5 2.0 -4.8 27.3 50.3 1,842.6 2016 5.0 5.2 -2.3 36.2 2.1 -4.2 27.9 54.9 1,967.6
35
India
But Indias economy continues to be held back by weak investment, particularly in the private sector. The 201314 budget fell short of measures to stimulate private businesses. Government expenditure was cut and the tax rate on corporations was increased to boost revenues. Although the Government has taken tentative steps toward improving the economic environment, a lot more needs to be done. Unless the reform process accelerates, we expect medium-term growth to reach 7.5%. This will miss the Governments stated target of 8% growth.
Figure 36
Figure 37
60 6 55
50
-4 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Markit.
Table 13
India
2011 Real GDP growth (% per year) Wholesale price index (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 7.5 9.5 -3.4 17.1 9.5 46.7 -6.7 1,232.8 1,864.2 1,512.2 2012 5.1 7.5 -5.1 19.4 9.5 53.5 -5.6 1,249.0 1,827.2 1,463.0 2013 5.1 5.2 -4.8 18.4 8.5 55.3 -5.1 1,265.0 2,000.5 1,581.5 2014 6.4 4.7 -4.5 17.4 7.6 57.4 -4.8 1,280.7 2,196.3 1,714.9
Source: Oxford Economics. 2015 7.5 4.5 -4.4 16.5 7.7 59.9 -3.9 1,296.1 2,402.6 1,853.7 2016 7.6 4.2 -4.2 15.9 7.8 62.7 -3.2 1,311.2 2,593.6 1,978.0
36
Indonesia
to credit. Exports remain weak, with low commodity prices hitting coal, crude oil and natural gas revenues. However, export volumes picked up in Q1 and this improvement is likely to continue, albeit gradually. The authorities have encouraged more long-term investment to help develop infrastructure projects. This is starting to bear fruit, with annual FDI inflows exceeding US$19b for the second year running in 2012. Lower subsidies should also free up more funding for infrastructure investment. We expect higher FDI to help support overall investment in the next few years. The economy is expected to grow by 6.1% in 2013 and 6.0% in 2014. Strong domestic fundamentals should support medium-term growth above 5.5%.
Figure 38
Figure 39
Inflation
% increase per year 35 30 25 20 15 10 5 0 -5 -10 2000 2002 2004 2006 2008 2010 2012 2014 2016 Consumer prices Producer prices Forecast
Table 14
Indonesia
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 6.5 5.4 0.2 26.1 6.5 8,789.4 -1.1 235.3 844.9 3,591.0 2012 6.2 4.3 -2.7 27.5 4.7 9,403.2 -1.8 237.7 876.4 3,687.5 2013 6.1 5.4 -2.7 26.6 5.0 9,733.5 -1.7 240.0 941.4 3,922.4 2014 6.0 5.0 -2.1 23.4 5.7 9,566.2 -1.7 242.3 1,066.2 4,401.0
Source: Oxford Economics. 2015 5.6 4.8 -1.9 21.1 7.3 9,548.4 -1.4 244.5 1,181.8 4,834.4 2016 5.5 4.8 -1.6 19.5 7.5 9,724.9 -1.1 246.6 1,283.0 5,203.3
37
Kazakhstan
Higher metal prices and ongoing fiscal stimulus to support a strong recovery
After slowing to 5% in 2012, GDP growth is forecast to accelerate to 5.7% this year, and then 6.9% in 2014. This improvement is the result of several factors, including stronger growth in key export markets, rising oil production, a better performance by agriculture and higher metal prices. Fiscal stimulus will continue, given the healthy public finances and oil prices that are still historically high. The National Oil Fund continues to rise it reached US$60b at the end of March. Interest rates remain at an historic low of 5.5% and are expected to be kept low to support growth and the banking sector.
The giant US$46b Kashagan offshore oil field will come on stream by 2014. It holds 13 billion barrels of recoverable oil reserves and could result in a near doubling of output within a decade. In addition, there will be heavy investment in copper production. But GDP growth will fall short of rates reached in 200007, averaging 7% in the medium term. This is in part due to more modest growth in public spending, but mostly because the banking sector will take time to recover from the global financial crisis.
Figure 40
Figure 41
Inflation
% increase per year 50 45 40 Europe and Central Asia 35 30 25 20 Kazakhstan Europe and Central Asia Forecast
-5
15 10 5
-10
-15 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Table 15
Kazakhstan
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 7.5 8.3 7.7 68.0 1.9 146.6 -2.1 16.2 183.1 11,304.3 2012 5.0 5.1 3.8 68.3 2.4 149.1 -3.0 16.4 200.5 12,246.9 2013 5.7 6.9 1.1 59.6 3.5 151.5 -2.8 16.5 218.5 13,206.3 2014 6.9 7.0 0.4 52.0 4.7 159.1 -2.8 16.7 238.0 14,238.4
Source: Oxford Economics. 2015 7.1 6.5 1.1 44.8 5.7 163.8 -2.8 16.9 263.5 15,606.9 2016 6.7 6.2 1.3 38.9 6.5 168.8 -3.0 17.0 290.1 17,018.0
38
Korea
in 2014. Global trade should receive a modest lift from an expected end to the Eurozone recession, faster growth in the US, and a steady expansion of 7%8% in China. Even only a relatively small improvement in global trade could be enough to trigger a greater willingness to invest among Koreas exporting companies provided that there is the expectation that the global pickup will gather momentum in 2014 (which we are anticipating). Meanwhile, consumer confidence remains at a reasonable level and, with inflation very low, even fairly modest wage and employment growth should ensure acceptable real income growth for households. We expect monetary and fiscal policy to remain accommodative, supporting medium-term growth in excess of 4% per annum.
Figure 42
Figure 43
10
15
0 Net exports 5
-5
-15
-20 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
-25 1990 1993 1996 1999 2002 2005 2008 2011 2014
Table 16
South Korea
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 3.7 4.0 2.3 35.4 3.4 1,108.2 1.5 48.7 1,115.0 22,907.7 2012 2.0 2.2 3.8 36.8 3.3 1,126.8 1.4 48.8 1,129.8 23,144.8 2013 2.1 1.5 3.8 34.4 2.7 1,103.9 -0.5 48.9 1,189.0 24,292.6 2014 4.1 2.5 2.3 32.0 3.0 1,090.7 -0.2 49.1 1,274.6 25,978.7
Source: Oxford Economics. 2015 4.4 2.7 1.4 30.1 4.0 1,090.8 -0.2 49.2 1,356.8 27,596.1 2016 4.1 2.6 1.2 28.4 4.9 1,094.0 0.0 49.3 1,436.8 29,170.7
39
Malaysia
Bank Negara left its policy interest rate at 3% in May. Comments from Governor Zeti suggest that interest rate cuts are unlikely, as long as domestic demand remains resilient. Although inflation remains benign, at 1.7% in April, our forecast assumes that rates remain steady this year. In the medium term, expansion will be driven by strong investment growth, underpinned by the various economic programs under way. The Government must now push forward with its reform agenda. This is crucial if the economy is to achieve growth of 4% per annum over the longer term.
Figure 44
Figure 45
Industrial production
% increase per year 30
20
10
-10 Three-month moving average -20 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Table 17
Malaysia
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 5.1 3.2 11.6 31.5 2.9 3.1 -4.7 28.4 289.2 10,182.7 2012 5.6 1.7 6.1 34.4 3.0 3.1 -4.4 28.8 305.1 10,579.0 2013 4.7 2.0 4.0 35.7 3.1 3.0 -4.2 29.3 328.2 11,215.6 2014 5.7 2.9 4.5 35.8 3.4 3.0 -3.8 29.7 356.8 12,021.1
Source: Oxford Economics. 2015 4.5 3.1 4.5 36.1 3.7 3.0 -3.6 30.1 384.9 12,791.4 2016 4.5 3.0 4.5 36.3 3.6 3.0 -4.1 30.5 415.0 13,607.0
40
Mexico
Growth is expected to accelerate gently this year, as a result of a steady improvement in both external and domestic demand. Although the tax rises and spending cuts in the sequester are beginning to bite, consumer spending in the US is building momentum. And back in Mexico, demand is being supported by moderating inflation and the central banks interest rate cut in March. The Governments reform agenda has continued at a rapid pace, with laws to improve the functioning of the labor market and telecoms sector, followed up by proposals to privatize the oil industry. If implemented, these changes will allow the economy to grow rapidly (4.5% per annum) over the medium term. But political infighting in the main opposition party is threatening the political consensus, and to slow or even derail the reform process.
Figure 46
Figure 47
20
10
0 10 -10 0 -10 -20 -30 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 -20 US goods imports -30 Consumption
-40 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Table 18
Mexico
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 3.9 3.4 -0.9 23.4 4.4 12.4 -1.9 115.0 1,160.3 10,094.2 2012 3.9 4.1 -1.0 25.1 4.4 13.2 -2.2 116.3 1,177.6 10,125.0 2013 2.8 4.0 -1.2 23.5 4.0 12.5 -2.2 117.6 1,311.8 11,151.0 2014 4.8 3.6 -1.1 22.7 4.2 12.6 -2.4 118.9 1,409.8 11,852.2
Source: Oxford Economics. 2015 4.5 3.4 -0.9 22.4 4.9 12.9 -2.5 120.2 1,485.7 12,359.3 2016 4.3 3.2 -1.0 22.2 5.3 13.2 -2.5 121.4 1,560.2 12,847.2
41
Nigeria
Inflation stayed high in 2012, averaging just over 12%, with core inflation close to 14%. The headline rate dropped to just under 9% in May but the central bank left interest rates on hold at its May policy meeting. Given the high spending by the states, concerns persist about the fiscal deficit. Strong oil exports lifted the current account surplus to about 5.9% in 2012, despite rising imports and heavy income and services outflows. With world oil prices lower and imports rising strongly, the surplus is forecast to fall back in 2013. But the external position will remain solid, underpinned by high oil revenues.
Figure 48
Figure 49
Inflation
% increase per year 80 70 60 50 40 30 20 10 0 1990 1993 1996 1999 2002 2005 2008 2011 2014 Forecast Nigeria
Africa
Sub-Saharan Africa
Table 19
Nigeria
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 7.4 10.8 3.8 5.8 10.6 154.7 -3.1 162.7 227.0 1,395.2 2012 6.5 12.2 5.9 5.0 14.2 156.8 -3.1 167.0 267.6 1,602.7 2013 6.5 9.3 1.9 4.6 11.5 159.8 -3.9 171.2 305.6 1,784.5 2014 6.1 8.6 0.7 4.3 9.5 163.1 -3.2 175.5 345.2 1,966.5
Source: Oxford Economics. 2015 5.5 8.0 1.4 4.1 8.0 166.2 -2.2 179.8 385.9 2,146.6 2016 5.1 8.0 1.2 3.9 7.0 170.5 -1.4 184.6 426.9 2,312.5
42
Poland
have bottomed out, but we expect growth to remain very subdued in Q2. Activity should pick up a little in the second half of the year, with the economy set to benefit from the extensive monetary easing implemented over the past nine months. In the medium term, we expect growth to pick up gradually to just over 3.5%. This reflects a combination of sound fundamentals, particularly in the banking sector, and the existence of spare capacity following the prolonged slowdown.
Figure 50
Figure 51
0 70 -2 60
-4
-6
50
-10
-12 1992 1995 1998 2001 2004 2007 2010 2013 2016
30
Table 20
Poland
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 4.5 4.2 -4.9 66.7 4.3 3.0 -5.0 38.5 516.4 13,399.9 2012 2.0 3.7 -3.5 71.3 4.7 3.3 -3.9 38.6 489.9 12,706.1 2013 0.9 1.5 -2.6 78.1 2.9 3.2 -4.0 38.6 510.5 13,232.2 2014 2.5 2.4 -2.4 83.5 3.4 3.3 -3.7 38.6 518.0 13,416.7
Source: Oxford Economics. 2015 3.3 2.5 -2.7 85.0 3.7 3.4 -3.0 38.6 543.9 14,088.2 2016 3.6 2.5 -3.2 83.3 4.2 3.3 -2.5 38.6 589.3 15,269.3
43
Qatar
expanding population. Hamad International Airport is set to open soon and the first contracts for a US$36b rail system are due to be signed. The 201314 budget shows spending up 18% on 201213 plans. There will be no additional gas export capacity until at least 2015 and we do not expect any rise in oil production this year, with only a 0.5% increase coming in 2014. This reflects marginal spare capacity and no pressure to add to supply, because of added supplies elsewhere and potential price weakness. After posting double-digit rates in 200611, we expect GDP growth of around 6% over the medium term.
Figure 52
Figure 53
Inflation
% increase per year 18 15 12 9 Middle East and North Africa Forecast
25 Qatar
20
15 6 10 3 5 Middle East and North Africa -3 -6 1994 1997 2000 2003 2006 2009 2012 2015 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 0 Qatar
-5 1991
Table 21
Qatar
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 13.0 1.9 30.3 50.4 3.6 8.7 1.8 173.5 95,666.0 2012 6.2 1.9 32.4 44.1 3.6 12.8 1.9 192.4 102,966.1 2013 5.0 3.8 25.6 39.1 3.6 9.3 1.9 217.2 112,938.8 2014 6.0 4.3 21.8 36.3 3.6 8.7 2.0 228.9 115,730.5
Source: Oxford Economics. 2015 6.1 4.5 19.7 33.4 3.6 8.5 2.0 243.7 119,882.6 2016 6.0 4.5 17.8 30.7 3.6 8.2 2.1 260.0 125,827.6
44
Russia
of the slowdown. However, given the continued strength of labor market conditions, we expect consumption to pick up during the remainder of this year, particularly if, as expected, inflation falls back in the second half of the year. In the medium term, the economys poor demographic profile, together with a fairly limited pace of policy reform, will constrain real GDP growth to around 4%. We think that risks are broadly balanced, with the potential for faster medium-term growth if a more ambitious modernization program is implemented.
Figure 54
Figure 55
Contributions to GDP
% increase per year 15 Domestic demand Forecast
Inflation
% increase per year 60 50 40 30 Wages Producer prices
10
0 20 -5 Net exports -10 GDP -15 10 0 -10 -20 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Consumer prices
-20
Table 22
Russia
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 4.3 8.4 5.2 28.1 5.6 29.4 2.1 142.8 1,897.2 13,286.5 2012 3.4 5.1 3.9 29.8 7.2 31.1 -0.1 142.7 2,012.2 14,104.8 2013 2.7 6.3 1.5 31.9 7.4 31.3 -1.1 142.5 2,168.6 15,215.2 2014 3.4 4.8 1.1 33.8 7.6 32.0 -0.8 142.4 2,327.8 16,349.3
Source: Oxford Economics. 2015 4.1 5.2 0.8 35.0 7.3 32.5 -0.8 142.2 2,501.4 17,590.4 2016 4.1 4.9 0.2 36.0 7.0 33.1 -0.7 142.0 2,679.8 18,871.5
45
Saudi Arabia
unemployment rate, particularly for males. Meanwhile, fiscal policy will remain supportive, with government spending forecast to rise by an average of 7.4% per annum across 201416. We expect growth to average 4.5% per annum in the medium term, supported by strong fundamentals. But there are a number of downside risks to our forecast. On the oil front, the development of shale oil and gas in the US and rising supplies elsewhere threaten to limit potential oil output in a sustained way. And on the non-oil front, political instability stands out as a potential concern, given the uncertainty over the succession, youth unemployment and tensions in neighboring countries.
Figure 56
Figure 57
8 Middle East and North Africa 6 150 120 90 4 60 2 30 0 0 Saudi Arabia -2 1990 1993 1996 1999 2002 2005 2008 2011 2014 -30 -60 1991 1994 1997 2000 2003 2006 2009 2012 2015
45 30 15 0 -15 -30
Table 23
Saudi Arabia
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 8.5 3.9 23.7 13.0 0.7 3.8 11.6 28.1 669.5 23,854.7 2012 6.8 2.9 22.7 12.3 0.9 3.8 13.7 28.7 727.3 25,355.8 2013 4.3 4.1 14.3 12.2 1.0 3.8 8.4 29.3 739.7 25,243.0 2014 4.6 4.0 12.9 11.2 1.0 3.8 5.4 29.9 792.9 26,501.1
Source: Oxford Economics. 2015 4.3 3.8 12.0 10.1 1.0 3.8 2.7 30.5 864.8 28,317.6 2016 4.0 3.8 11.5 9.2 1.5 3.8 1.0 31.1 926.9 29,768.1
46
South Africa
Investor confidence is being hit by both foreign and domestic challenges such as labor unrest, high wage growth, currency volatility and structural rigidities. Investor perceptions could deteriorate further if the fiscal position remains poor. These factors pose the risk of a reduction in FDI, and a further weakening of the rand. Investment growth is forecast to slow to 3.3% in 2013, after growing by 5.7% last year. Medium-term growth should exceed 4%, but risks come from a weaker-than-expected recovery in key trading partners, resulting in a stubbornly high external deficit. Recurrence of serious labor unrest in mining would also limit growth.
Figure 59
Contributions to GDP
% year 10
Current balance
US$b
GDP
8 6 4 2 0 -2 -4 -6 1990 1993 1996 1999 2002 2005 2008 2011
Forecast
10 5 0 -5 -10 -15
Trade balance
Forecast
Domestic demand
Net exports
Current account
2002
2005
2008
2011
2014
Table 24
South Africa
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 3.5 5.0 -3.4 27.2 5.6 7.3 -4.2 50.5 403.1 7,982.7 2012 2.5 5.7 -6.3 33.0 5.4 8.2 -4.7 50.8 384.9 7,582.2 2013 2.0 6.0 -6.5 41.0 5.2 9.5 -4.4 51.0 365.9 7,173.4 2014 3.6 5.5 -5.7 41.3 5.7 9.3 -4.0 51.2 408.5 7,975.1
Source: Oxford Economics. 2015 4.0 4.9 -5.1 40.3 6.4 9.1 -3.6 51.5 456.7 8,874.3 2016 4.4 4.8 -4.6 38.4 7.2 8.9 -3.3 51.7 511.8 9,899.2
47
Thailand
First quarter domestic activity slows, but loose monetary policy should help
Seasonally adjusted GDP fell by 2.2% on the quarter in Q1 2013. We had expected growth to slow this year as the boost from post-flooding reconstruction faded, but the underlying pace of activity has slowed beyond that. In Q1, both seasonally adjusted consumer spending and manufacturing fell on the quarter for the first time since 2011. At the monetary policy meeting in May, the central bank cut its key interest rate for the first time since October. The bank highlighted the slower-than-expected global recovery, tepid domestic demand in Q1 and concerns about attracting excessive capital inflows. However, with
credit continuing to grow at a double-digit pace, share and property prices rising, and real wage growth robust, we do not expect the bank to reduce rates again this year. We have cut our forecast for GDP growth in 2013 as a whole from 5.3% to 4.2% in light of the disappointing Q1 performance, the patchy global recovery and concerns about the impact of the strength of the Thai baht on Thailands export competitiveness. Estimated seasonally adjusted exports have struggled to make much headway in 2013, but should strengthen as the year progresses. This ought to help drive stronger industrial output, and underpin solid medium-term growth of 5% or more.
Figure 60
Figure 61
Table 25
Thailand
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 0.1 3.8 1.7 23.2 3.1 30.5 -1.6 68.6 346.1 5,046.3 2012 6.5 3.0 0.7 21.1 3.1 31.1 -4.4 68.9 366.4 5,314.9 2013 4.2 2.5 0.3 20.3 2.8 30.0 -2.8 69.3 403.7 5,825.4 2014 5.5 2.7 0.9 21.1 3.2 30.9 -3.0 69.6 424.7 6,098.6
Source: Oxford Economics. 2015 4.9 2.4 0.7 21.5 4.5 32.0 -2.4 70.0 439.7 6,282.9 2016 5.0 2.4 0.7 23.0 5.4 32.9 -2.2 70.3 459.9 6,541.9
48
Turkey
and Turkish capital markets fell sharply at the end of May and in early June in response to news of a large widening in the external deficits as well as sizeable political demonstrations. These developments, together with the evidence that the economy was growing soundly in early 2013, are likely to make the bank more cautious with regard to policy. However, provided that the political situation does not worsen and that prudent economic policies are followed, the economys recovery should build further, with rising EU demand for Turkish exports in 2014 adding to robust demand and pushing GDP growth above 5% in the medium term.
Figure 62
Figure 63
Interest rates
% 24 22 20 18 16 14 12 10 8 6 4 2006 2007 2008 2009 2010 2011 2012 2013 Average bank lending rate
Table 26
Turkey
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 8.8 6.5 -9.7 39.2 8.6 1.7 -1.4 73.7 777.2 10,539.4 2012 2.2 8.9 -6.1 41.5 8.7 1.8 -2.1 74.6 790.5 10,595.2 2013 3.5 6.6 -7.0 40.8 5.6 1.8 -2.1 75.5 855.2 11,332.9 2014 5.4 5.4 -7.2 39.8 7.4 1.9 -1.7 76.3 905.1 11,863.4
Source: Oxford Economics. 2015 5.2 5.0 -6.9 39.0 9.4 2.0 -1.4 77.1 954.2 12,375.5 2016 5.2 4.6 -6.7 37.1 9.5 2.0 -1.3 77.9 1,034.4 13,280.4
49
Ukraine
Growth close to zero this year, but exports will drive pickup in 201416
Although GDP rose 0.5% in Q1 2013, weaker exports and private investment meant that it was 1.3% lower compared with a year earlier. And despite improving agriculture, weak industrial output will delay any recovery until Eurozone markets improve. As a result, our 2013 GDP growth forecast has been cut to just 0.3%. With output focused on intermediate inputs, demand for which is highly cyclical, recovery in sales to the EU and Russia is forecast to lift growth to about 4% in 2014 and then about 4.5% in 201516. But political uncertainty ahead of presidential elections in early 2015 may undermine prospects.
Inflation has fallen sharply in the past year, but subsidy cuts to curb the fiscal deficit (5% of GDP) may see a rebound in H2 2013, with the medium-term rate climbing back to 5%6%. An IMF deal (which is hoped for) would be conditional on higher residential gas prices and other cost rises, in turn prompting faster wage growth. The large current account deficit (equal to 9% of GDP in 2012) and heavy debt service costs will require a new IMF standby or bilateral loans this year. Risks of the currency suddenly weakening will rise if the trade deficit erodes foreign reserves, though prospects would be enhanced if an EU association agreement is signed in H2 2013.
Figure 64
Figure 65
Inflation
% increase per year 45 40 35 30 25 Ukraine Forecast
20 -8 -10 -12 -14 15 10 5 0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Europe and Central Asia
Table 27
Ukraine
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 5.2 8.0 -6.3 82.3 7.8 8.0 -2.8 45.2 163.4 3,615.3 2012 0.1 1.7 -8.9 88.2 7.5 8.0 -4.9 45.0 165.8 3,688.4 2013 0.3 2.0 -6.7 94.9 7.0 8.3 -5.1 44.7 163.3 3,652.6 2014 3.9 6.0 -6.3 94.9 7.1 8.7 -4.0 44.5 172.4 3,877.7
Source: Oxford Economics. 2015 4.5 5.5 -5.8 91.6 7.1 8.7 -3.4 44.2 188.2 4,256.1 2016 4.4 5.5 -5.2 87.9 7.0 8.8 -2.5 44.0 205.7 4,675.4
50
Growth in Abu Dhabi will remain respectable, as oil production rises in line with ongoing capacity expansions. However, growth will be tempered by weak oil prices over the next two years, with Brent expected to end 2013 and 2014 at US$102 per barrel and US$108 per barrel respectively. Risks to our forecast are broadly balanced. Higher oil prices and safe-haven capital flows arising from instability elsewhere in the region could lead to a surprise on the upside. Conversely, financial instability presents a downside risk. Elevated levels of non-performing loans, alongside comparatively low coverage ratios for local banks, are areas of concern.
Figure 66
Figure 67
Table 28
Source: Oxford Economics. 2015 4.1 2.7 5.1 19.4 1.5 3.7 6.1 8.4 439.0 52,428.9 2016 3.8 3.0 5.1 17.1 2.0 3.7 6.2 8.5 468.9 54,946.0
51
Vietnam
continued reliance on inward and domestic investment to attain the medium-term growth target of 7% or more. Inflation slowed to 6.4% in May. Price stability will be promoted in the medium term by increased domestic energy and food production, better monetary management and greater stability of the Vietnamese dong. But commodity prices and currency movements remain sources of inflation risk in 201314. GDP growth will peak at over 7% in 2015, as exports improve and there is stronger industrial investment (boosted by favorable regional trends) and rising private consumption.
Figure 68
Figure 69
Inflation
% increase per year 70 60 50 Vietnam 40 Forecast
10
8 Vietnam 6 20 4 10 0 -10 1994 1997 2000 2003 2006 2009 2012 2015 1991 1994 1997 2000 2003 2006 2009 2012 2015 East Asia and Pacic 30
0 1991
Table 29
Vietnam
2011 Real GDP growth (% per year) CPI inflation (% per year) Current account balance (% of GDP) External debt total (% of GDP) Short-term interest rate (%) Exchange per US$ (year average) Government balance (% of GDP) Population (millions) Nominal GDP (US$b) GDP per capita (US$ current prices) 6.0 18.7 0.2 46.8 15.0 20,509.8 -2.8 88.8 123.6 1,392.4 2012 5.0 9.1 4.7 37.8 8.3 20,858.9 -3.5 89.7 139.2 1,552.6 2013 5.5 7.7 2.7 31.9 7.0 21,402.3 -3.7 90.6 154.2 1,702.1 2014 6.9 6.4 0.8 28.2 6.0 21,995.1 -3.7 91.5 170.7 1,865.2
Source: Oxford Economics. 2015 7.1 4.8 -0.1 25.8 6.0 22,497.6 -3.4 92.4 187.3 2,025.9 2016 6.6 4.5 0.0 23.7 6.0 22,900.3 -3.2 93.2 204.9 2,197.8
52
Detailed tables
54
Cross-country tables
Real GDP growth
2011 Americas Argentina Brazil Chile Colombia Mexico EMEIA Czech Republic Egypt Ghana India Kazakhstan Nigeria Poland Qatar Russia Saudi Arabia South Africa Turkey Ukraine United Arab Emirates Asia China and Hong Kong Indonesia Korea Malaysia Thailand Vietnam Total 4.2 8.9 2.7 5.8 6.6 3.9 6.3 1.8 1.8 14.4 7.5 7.5 7.4 4.5 13.0 4.3 8.5 3.5 8.8 5.2 4.2 7.5 9.1 6.5 3.7 5.1 0.1 6.0 6.4 2012 2.6 1.9 0.9 5.6 4.0 3.9 3.8 -1.2 2.2 7.1 5.1 5.0 6.5 2.0 6.2 3.4 6.8 2.5 2.2 0.1 3.3 6.4 7.5 6.2 2.0 5.6 6.5 5.0 4.7 2013 2.8 2.7 2.4 4.5 3.9 2.8 3.5 -1.0 1.7 6.9 5.1 5.7 6.5 0.9 5.0 2.7 4.3 2.0 3.5 0.3 3.7 6.2 7.3 6.1 2.1 4.7 4.2 5.5 4.6 2014 4.4 3.6 4.1 4.7 4.4 4.8 4.7 2.2 2.0 5.9 6.4 6.9 6.1 2.5 6.0 3.4 4.6 3.6 5.4 3.9 3.9 7.0 7.8 6.0 4.1 5.7 5.5 6.9 5.7 2015 4.4 4.6 4.2 4.6 4.2 4.5 5.3 2.7 4.5 5.5 7.5 7.1 5.5 3.3 6.1 4.1 4.3 4.0 5.2 4.5 4.1 6.9 7.7 5.6 4.4 4.5 4.9 7.1 5.9 2016 4.1 3.9 4.0 4.4 4.0 4.3 5.3 3.0 5.9 5.0 7.6 6.7 5.1 3.6 6.0 4.1 4.0 4.4 5.2 4.4 3.8 6.7 7.5 5.5 4.1 4.5 5.0 6.6 5.8
55
Cross-country tables
CPI inflation
2011 Americas Argentina Brazil Chile Colombia Mexico EMEIA Czech Republic Egypt Ghana India Kazakhstan Nigeria Poland Qatar Russia Saudi Arabia South Africa Turkey Ukraine United Arab Emirates Asia China and Hong Kong Indonesia Korea Malaysia Thailand Vietnam Total 5.4 9.8 6.6 3.3 3.4 3.4 6.9 1.9 10.1 8.7 9.5 8.3 10.8 4.2 1.9 8.4 3.9 5.0 6.5 8.0 0.9 5.2 5.4 5.4 4.0 3.2 3.8 18.7 5.9 2012 5.1 10.0 5.4 3.0 3.2 4.1 5.9 3.3 7.1 9.2 7.5 5.1 12.2 3.7 1.9 5.1 2.9 5.7 8.9 1.7 0.7 2.8 2.7 4.3 2.2 1.7 3.0 9.1 4.3 2013 5.3 10.8 6.3 1.5 2.1 4.0 5.2 1.8 9.0 9.0 5.2 6.9 9.3 1.5 3.8 6.3 4.1 6.0 6.6 2.0 1.5 2.8 2.8 5.4 1.5 2.0 2.5 7.7 4.1 2014 5.1 10.3 5.8 3.0 3.2 3.6 4.8 1.8 10.1 7.3 4.7 7.0 8.6 2.4 4.3 4.8 4.0 5.5 5.4 6.0 2.4 3.6 3.7 5.0 2.5 2.9 2.7 6.4 4.3 2015 4.7 9.7 5.1 3.2 3.3 3.4 4.6 2.1 8.0 6.0 4.5 6.5 8.0 2.5 4.5 5.2 3.8 4.9 5.0 5.5 2.7 3.8 4.0 4.8 2.7 3.1 2.4 4.8 4.2 2016 4.4 9.5 4.5 3.0 3.3 3.2 4.4 2.1 6.0 5.2 4.2 6.2 8.0 2.5 4.5 4.9 3.8 4.8 4.6 5.5 3.0 3.3 3.4 4.8 2.6 3.0 2.4 4.5 3.9
56
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