Perhaps it is because these days we share information so much easier via Social Media, but this year I am more aware of “trend-talk” than ever before. I have seen quite a few articles and blogs about Trends for 2013 and have shared some of what I found interesting regarding food and wine trends in earlier blogs. Now I would like to share some forecasts for the global economy.
Whether we are interested in economic matters or not, we all live in the economy and while our behaviour and patterns influence the economy, in the same way, the economy determines what we do and how we behave. There is of course much speculation about what to expect from the Global Economy in the year ahead, but I found some interesting articles which I would like to share:
Shane Brett of Seeking Alpha shares 5 Key Economic Trends in the Global Economy for the year ahead while Piet Coetzer writes on Leadership Online about what is we can expect for South Africa.
1. United States
Shane Brett is positive about the US economy: “The US economy is undergoing a slow, structural recovery from the debt-fueled expansion at the start of this century. In 2012 the US economy grew at approximately 2% – far more than the Euro Zone or UK. Recently the US has easily been the best performing “rich world” economy.”
He lists reasons for the “broadly positive” US economic outlook as:
- The stabilisation of the housing market
- Return of consumer confidence
- Political stability with Barack Obama’s election win
- Cheap domestic energy – “In 2013 the US will continue its astonishing windfall of cheap domestic energy. The US will start to seriously expand its exploration of Shale Oil. The Shale Gas story is well known. What is newer is the use of the same “fracking” technology to access colossal reserves of untapped oil in Texas (and especially) in North Dakota.”
- Relocation of energy intensive industries from around the world to the US, to take advantage of far cheaper gas prices.
Negative aspects in the US economy:
- Debt ceiling crisis in Washington
- High unemployment rate
- A general fear of economic fragility
- How the effects of massive money printing (Quantitative Easing) will affect the economy in the years ahead.
- Currency volatility is virtually guaranteed.
Brett concludes with: “In a world of future escalating commodity prices the US is in the enviable position of being food (and potentially) energy independent. Crucially, it has a solid future demographic structure, with a young growing population. It also remains the world center for economic creativity and new business start-ups. Most of the world would be happy to have America’s problems.”
China’s plans to spend more on infrastructure in 2013 should have a positive impact on the global economy.
“It will spend over 1Trillion Yuan (approx $157 billion) this year. This should provide a boost to the world economy (even if this spending is unsustainable).”
The Alpha article explains that China’s One-party system enables the quick approval and implementation of large infrastructural projects, but it has to take care that the spending on infrastructure is not wasted on “empty airports and unused highways” but rather to improve and modernise as a foundation for a “solid future economy”.
Transportation, electricity, road construction and port expansion will be the major focus, with the following results:
- The expansion of the Chinese electricity network will push up Copper prices.
- Extending the high speed train network to a large number of second-tier domestic cities, might drive growth and economic development.
- Less coal fired electricity plants due to the building of a huge number of nuclear plants around the country.
- Commodity dependent economies like South Africa might benefit, although China’s infrastructural spending is unsustainable in the long run.
Problems for China in 2013:
- banking bad debts
- an unhappy middle class
- a choppy political leadership changeover
- tension with its neighbours
Brett sees the 2013 German election to be the major economic influence in Europe.
“Angela Merkel will be seeking re-election and is keen not to upset the electorate by being seen to commit the German purse to further economic bailouts.”
As a result ending the Euro Zone Crisis prior to the election in September seems unlikely and 2013 might therefore not bail out countries such as Ireland and Portugal hoping to get a Greek style debt write off.
“Joint Euro Zone debt would drive up the cost of German borrowing and force it to properly backstop basket cases like Greece. Despite a gradual German realization that long-term debt mutualization will be required; it is not a policy that Merkel can sell to the German people this year.”
In conclusion, the article’s forecast for Europe is not that rosy. “The main economies of Europe will teeter between zero growth and recession. Political crises will flare up in both Italy and Spain, while the UK will agree to hold some sort of referendum loosening its ties to the European Union. A major EU member has never done this before. It could have a huge effect on the future of the European continent.”
4. South Africa
“International organisations are predicting that most global regions are heading for a period of reduced economic growth, with the Sub-Saharan region being one of the few exceptions. South Africa, however, is bunking the Africa trend. The country is expected to return growth rates below the global average for both 2012 and 2013, with an increasing danger of slipping into recessionary conditions.”
The International Monetary Fund’s (IMF) expectation for South Africa is weak growth of around 3.0% in 2013 while it predicts a 5.7% growth rate for the Sub-Sahara African region’s economy.
“It ascribes South Africa’s situation in part to spillovers from Europe’s debt crisis. Europe remains the main destination for South African exports.”
In July 2012, concern over the risks of the global downturn on the SA economy caused the South African Reserve Bank to trim its repo rate by half a percentage point to 5.
“In its latest report the IMF states that South Africa may have to rely on monetary policy to cushion the economy against the effects of the global slowdown. It noted that room for fiscal manoeuvre was limited, suggesting that it believes there could be scope for further interest rate cuts in South Africa. Most analysts however, regard such a scenario as unlikely, unless the global environment worsens considerably.”
Economist Mike Schussler said there was hope in the long term but for now, it was “doom and gloom”. According to him there is a 20% chance of the country hitting a recession, up from between 5% to 10%. The chances of over 3% growth in the next two quarters were less than 10% and the country was in for a period of slow, stagnating growth.
But we are not alone. According to Nouriel Roubini in Business Day Live, “many emerging markets — including Brics members Brazil, Russia, India and China, but also many others — are now experiencing decelerating growth. Their “state capitalism” — a large role for state-owned companies; an even larger role for state-owned banks; resource nationalism; import-substitution industrialisation; and financial protectionism and controls on foreign direct investment — is the heart of the problem. Whether they will embrace reforms aimed at boosting the private sector’s role in economic growth remains to be seen.”
With forecasts that global currencies will stay volatile and a rise in both inflation and commodities prices (which will definitely impact food pricing), 2013 will be an important year for the global economy.
And in the words of Brett: “Governments will be trying to simultaneous end budgetary, economic and currency crises in China, the US and Europe. Against this background economic growth will start to pick up but will face twin headwinds of volatile currencies and increasing commodity prices.
It will be a challenging global economic environment.”