Global Economic Outlook

May/June 2012

Agenda

Introduction

Introduction

The global economy is on a narrow path of slow and fragile recovery

Oil and commodity prices remain high and will continue to put further
pressure on the global economy
South Africas robust financial institutions and moderate fiscal and
external debt absorbed the impact of the global downturn to a large
extent.
However, the country needs to address its structural challenges
including, unemployment, education and inequality in order to be a
global economic player

Global Economic
Outlook 2012

Introduction
Recession:

Gross domestic
product (GDP)

Depression:

Business cycle:

A significant decline in activity across the economy, lasting longer than a few
months. It is visible in industrial production, employment, real income and
wholesale-retail trade. The technical indicator of a recession is two
consecutive quarters of negative economic growth as measured by a
country's gross domestic product (GDP)

Refers to the market value of all officially recognized final goods and
services produced within a country in a given period.

Is a sustained, long-term downturn in economic activity in one or more

economies. It is a more severe downturn than a recession, which is seen by
some economists as part of the modern business cycle.

The recurring and fluctuating levels of economic activity that an economy

experiences over a long period of time. The five stages of the business
cycle are growth (expansion), peak, recession (contraction), trough and
recovery. At one time, business cycles were thought to be extremely regular,
with predictable durations, but today they are widely believed to be irregular,
varying in frequency, magnitude and duration.

Session 1: Global outlook

Global outlook

Source: Economic Intelligence Unit, March 2012

Global outlook

Source: Economic Intelligence Unit, March 2012

The global economy is on a narrow path of slow and fragile Oil and commodity prices remain high and will continue to put
recovery. Many countries are struggling with a massive debt further pressure on the global economy
burden and high unemployment persisting to bog down their
economies and hampering growth.

Global outlook

Source: Economic Intelligence Unit, March 2012

According to the Economist Intelligence Units (EIU) March economic outlook, world GDP
is expected to grow by 2.1% on a market exchange rates basis in 2012, slowing down
markedly from the previous two years.

Changes in global economic risks

Greater Russia region
2.4%

North American region

Europe region

0.9%

1.2%

Middle East region

0.8%

Latin America & the

Caribbean region

African region
1.8%

0.9%

Legend
Production (Mn
tonnes)
Consumption (Mn
tonnes)
Compounded annual
growth Energy
rate Policy Scenarios to 2050, World Energy Council (values in mn tonnes)
Source:
consumption

Asia pacific region

1.2%

Energy intensity
Economic growth is closely related to growth in
energy consumption because the more energy is
used, the higher the economic growth. However, it
is possible to decouple energy consumption and
economic growth to some extent. More efficient
use of energy may entail economic growth and a
reduction in energy use.

Economist Intelligence Unit, KPMG calculations

Cumulative investment in energy infrastructure require 2011 2035

Coal - $1.1 trillion

Bio-Fuels - $0.3 trillion

Natural Gas - $9.5 trillion

Power- $16.9 trillion

World Energy Outlook 2011, (2010 real terms)

Global outlook
United States

Europe

The economy grew by 1.7% in

2011, but grew by 2.8% in Q4
of 2011.

European economic growth

slowed during 2011 to 1.5%
and is expected to contract
further in 2012 to -0.3%, before
a modest recovery in 2013.

Manufacturing in Japan is
already experiencing a vshaped recovery after the
March 2011 earthquake and
tsunami.

Inflation should remain

relatively low and contract to
around 2.2% in 2012 from the
2.7% observed in 2011.

GDP is expected to grow at

around 1.5% in 2012 on the
back of reconstruction activities
and a recent upswing in
machinery exports and local
consumption.

The inflation rate for 2011

doubled to 3.2% from 1.6% in
2010.
Growth prospects for Q1 2012
are around 2 to 2.2% on the
back of a gain in consumer
confidences subsequent retail
sales and manufacturing.
Persistently high
unemployment and risks of
downturns in markets abroad
will keep the FEDs policy rate
at very low levels until even as
late as 2014.

The European debt crises

threatened to derail global
recovery for the last two years

Japan

Global outlook
Emerging Markets

BRICS

The Next 11

Fears surrounding an
economic downturn have lead
EM central banks to either cut
their interest rates or postpone
monetary tightening during
2011.

The BRIC countries are

recognised as having very
large economies and
populations, with unravelled
growth potential in foreseeable
years.

The Next 11 consist of South

Korea, Iran, Mexico, Turkey,
Philippines, Indonesia, Egypt,
Nigeria, Pakistan, Vietnam and
Bangladesh.

Market expectations are that

EM countries will outperform
developed countries between
2013 - 2016, as interest rate
differentials will favour
investment into these EM
countries over that of the
OECD economies.

The Brazilian economy

experienced rapid expansion in
the last decade with strong
economic growth
Russia experienced strong
economic growth over the past
few years, but manufacturing
and foreign investment slowed
down since the global
downturn.

These economies are smaller

in size than the BRIC
countries, but with its large
population size and growth
rates of above the global
average, promises favourable
opportunities for future
investment and market growth.

Session 2: Africa

Where are we now?

Where are we now? Sub Saharan Africa

Angola

Angolas increased oil output

contributes about 85% of
GDP and recent natural gas
developments will result in a
high GDP growth rate.

Democratic Republic of Congo

Ethiopia

Congo (or the Democratic

Republic of Congo), though
incredibly richly endowed with
natural resources, remain one
of the countries which citizens
are among the poorest in the
world
very high rates of inflation
agriculture industry
employing more than 75% of
the working population

Ethiopia has been one of the

fastest growing African
countries in the past few
years as a result of some
modest economic reforms
Africas largest exporter of
coffee and second largest
maize producer, as well as a
big producer of livestock

Where are we now? Sub Saharan Africa

Ghana
Ghana remains one
of the worlds biggest
gold producers and
other exports include
cocoa, natural gas,
timber and
diamonds.

Mozambique
Mozambique is a
resource rich
country, producing
food, beverages,
chemicals,
aluminium,
petroleum products
Infrastructure
development,
especially electricity,
is necessary to
increase output and
create more
investment
opportunities.

Nigeria

Zambia

Nigerias vast
population size and
well developed
financial and
communications
sectors continue to
attract mobile phone
networks and banks
looking to capitalise
on the large amount
of unbanked
individuals.

Zambia is a large
producer and
processor of copper
and this hard
commodity is its
main export, with
agriculture being an
important pillar of the
economy.

Where are we now?

Most of the fastest developing economies are in the Sub- Saharan region
2001 - 2010

China
10.5

Ethiopia
8.4
Chad
7.9

2001 - 2010

Myanmar
10.3

Cambodia
7.7
Source: IMF World Economic Outlook, February 2012

Nigeria
8.9
Kazakhstan
8.2
Mozambique
7.9

Rwanda
7.6

China
9.5
Ethiopia
8.1
Tanzania
7.2
Congo
7.0
Zambi
a
6.9

India
8.2

2011- 2015

Angola
11.1

2011 2015 : Forecast

Mozambiqu
e
7.7
Vietnam
7.2
Ghana
7.0
Nigeria
6.8

Where are we now?: North Africa

Algeria

Egypt

Libya

Morocco

Tunisia

Algeria is
renowned for its
oil and gas
reserves, and
these resources
have dominated
its export
industry and
continue to
contribute
greatly towards
the countrys
GDP

Egypt
experienced a
period of
accelerated
growth following
reforms to
stimulate
investment
during the last
five years
The economy is
based on
agriculture as
well as exports
of their natural
resources
including oil,
coal, natural gas
and hydro
power.

Libya is slowly
recovering from
a crippling civil
war and like
some of its
neighbouring
countries

Morocco is the
worlds largest
exporter of
phosphorus and
mining,
construction and
manufacturing
make up just
over half of the
countrys GDP.
The high import
cost of oil will
continue to put
pressure on the
Moroccan
economy as the
price continue to
remain high.
Unemployment
and inflation is
relatively low

The country has

a diversified
economy,
ranging from
mining,
agriculture,
manufacturing
and
petrochemicals
to tourism which
was heavily
impeded on
during the
revolt.
Inflation remains
relatively
moderate,
High levels of
unemployment,
especially
among its youth.

Where are we going?: Future trends

Current
22
The number of people per square
kilometre (population density)
(UN)

The future
60
The number of people per
square kilometre (population
density) by 2050 (UN)
10%

6%
Old age dependency ratio (UN)

Old age dependency ratio of

10% by 2050 (UN)

> 1 billion
Africas population (UN)

>1.8 billion
Africas population by 2050 (UN)

5.5%
Sub-Sahara GDP growth rate in
2011 (f) (AEO)

4.9%
Sub-Sahara GDP growth
rate in 2015 (EIU)

Where are we going?: Future trends

Infrastructure expansion and
network growth are areas of
development in the future,
speeding up national
processes and connecting
Africa to the rest of the world.
Infrastructure
expansion

Africa is a net importer of

food and unable to meet
local demand.
With 60% of the worlds
uncultivated arable land
and low crop yields Africa
has enormous potential for
a green revolution similar
to those seen in Asia and
Brazil

Food import

Challenges
Africa faces

Climate
change

Africa currently spends $45

billion per annum on
infrastructure, when it should
be spending about $93
billion in order to catch up
with other developing
regions in the next ten years.

The impact of climate

change could be severe,
seeing that 96% of Africas
agriculture is extremely
rainfall dependent

Session 3: South Africa

SA and the global economy

SAs economys performance
since democracy (1994 to 2010)

Global factors affecting SA

economy

SA links with global economy and

global downturn

SA as part of the BRICS

Where are we now?

Europe's financial crisis

South Africas impact on the financial crisis
Affects world
economic
growth

Continues to
way down
financial
markets and
hamper global
growth

Strong links to
the euro zone
( largest trading
partner)

Financial crisis
has decreased
demand for
goods

Driven away
potential and
existing investors

Europe will take

long to recover,
SA would have to
change focus to
trade with china
and India

Where are we now?

A challenging environment

Actual

Estimate

Forecast

2010
3.7

2011
4.9

2012
3.6

2013
3.8

2014
4.2

4.9

4.6

4.1

4.1

4.1

Gross fixed capital formation

-1.6

4.3

4.1

4.5

Gross domestic expenditure

4.2

4.1

3.9

4.2

4.9

Exports

4.5

2.9

5.8

6.6

Imports

9.6

9.4

7.2

7.1

8.3

Real GDP growth

2.9

3.1

2.7

3.6

4.2

Headline CPI inflation

4.3

6.2

5.3

5.1

Final household consumption

Final government consumption

Where are we now?

South African competitiveness relative to peers

Where are we now?

South African competitiveness relative to peers
Weakness

Positive impact on FDIs

Strengths

Ineffective
Inadequate
Government
Educated
bureaucracy workforce

Restricted
Labour
regulations
SA
Problematic
factors
for doing
business

Corruption

Crime

Theft

Where are we going?

Tackling unemployment, poverty and education

Where are we going?

Where are we going?

Where are we going?

The State of the Nation Address, 2012/13 Budget and the MTEF
The NDP highlights the following 9 key issues within the South
African economy

5 major infrastructure
programmes

Geographicallyfocused

Integrated
approach

Mining,
transport &
agriculture

R4.8 billion was allocated to expanded

public works programme and the New
Jobs fund that began operating in June
of 2011, received over 2500
applications and committed over R1
billion in allocations to various projects.

Where are we going?

The State of the Nation Address, 2012/13 Budget and the MTEF
Consolidated
Budget
R million
Total receipts
Total payments
Budget balance
% of GDP

2011/12

2012/13*

2013/14**

2014/15**

830 210
972 547
-142 337
-4.8%

904 830
1058321
-153491
-4.6%

1 005 871
1 149 125
-143 255
-4.0%

1 118 183
1 239 699
-121 156
-3.0%

Tax proposals (R/m)

Personal income tax
Business tax
Property tax
Indirect tax
National budget revenue
after tax proposals

2012/13
-4 300.00
-6 350.00
8 342.00
904 830.00

Budget balance as % of GDP

Government is taking some steps to
improve the conditions for investors
Government aims to support both the
Industrial Development Zone (IDZ) and
Special Economic Zones (SEZ)
Government allocated R2.3 billion of
the R15.8 billion to economic services
and environmental protection to the
IDZs and SEZs.

Conclusion

Conclusion

Q&A

Q&A

Thank You
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