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Growth Scenarios for South Africa in 2014

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Frost & Sullivan Senior Economist, Craig Parker, delivers a presentation on the forecast for the South African economy for 2014

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Growth Scenarios for South Africa in 2014

  1. 1. Growth Scenarios for South Africa in 2014 CAUTION: Bumpy Road Ahead
  2. 2. Shattered Expectations
  3. 3. 2013 Has Defied Many Expectations South Africa’s GDP Forecast as Downgraded By the IMF in the Past Year 4.5 4.0 GDP Growth (%) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 GDP Growth (Oct 2012 Prediction) GDP Growth (April 2013 Prediction) 2012 2013 2014 GDP Growth (October 2013 Prediction) 2015 Source: IMF and Frost & Sullivan 3
  4. 4. 2013 Has Defied Many Expectations (Continued) Developed Economy Growth Revised Upward for 2013 2.3 1.3 1.5 2012 1.5 1.7 2013 2.0 Slow recovery in Europe has weakened growth prospects for 2014 2014 Stronger growth in the United States now expected in 2014 Developed Economies (2012 Prediction) Developed Economies (2013 Prediction) Emerging Economy Growth Revised Downward for 2013 5.3 5.9 5.6 4.9 2012 4.5 2013 5.1 Developed economies are expected to drive global growth despite growth downgrade for 2014 2014 Emerging Economies (2012 Prediction) Emerging Economies (2013 Prediction) 4 Source: IMF and Frost & Sullivan
  5. 5. Lessons Learned
  6. 6. What Did We Learn From 2013? • Stagnation of economic growth in Europe • Depreciation of the rand • Market reaction to policy decisions • Growth momentum slowdown in BRICS 6
  7. 7. Why Did the Slowdown Persist in Europe? Public debt remains high Fiscal spending constraints Investment slump Source: Economist, OECD and Frost & Sullivan 7
  8. 8. Strong Correlation with Low Growth Expectations and High Sovereign Debt European Debt Risk and Growth 4.0 Turkey GDP Average Growth 2012-2015 (%) 3.0 Poland Romania 2.0 Czech Republic United Kingdom Germany 1.0 Hungary R² = 0.820 France Spain Italy 0.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 -1.0 Greece -2.0 -3.0 Debt Risk Scale (1 = low risk; 10 = high risk) The debt risk scale was calculated taking into account the level of sovereign debt, the growth of this debt, openness of the economy and the level of financial flows the country is responsible for 8 Source: Frost & Sullivan analysis
  9. 9. Why Did the Slowdown Persist in Europe? (Continued) Unemployment Continues to Grow in Many Countries 25.0 2008 2009 2010 2011 2012 2013 2014 Unemployment Rate (%) 20.0 15.0 10.0 5.0 0.0 France Germany Greece Italy Portugal Spain Source: OECD and Frost & Sullivan 9
  10. 10. Why Did the Slowdown Persist in Europe? (Continued) Growth expectations remain strained European growth engine relies on Germany High tech industries and energy Source: Economist, OECD and Frost & Sullivan 10
  11. 11. Depreciation and Volatility of the Rand 11.00 10.50 21.25% depreciation from beginning of 2013 to end of November 2013 R/$ Exchange Rate 10.00 9.50 9.00 8.50 8.00 13% depreciation in 25 days 7.50 7.00 Source: SARB and Frost & Sullivan 11
  12. 12. Causes of Rand Depreciation in 2013 - Capital Outflows Foreign Purchases of Bonds and Stocks, South Africa, 2012 to July 2013 25000 Net Purchases (R Million) 20000 15000 10000 5000 0 -5000 -10000 Source: SARB and Frost & Sullivan 12
  13. 13. Causes of Rand Depreciation in 2013 - Lack of Exports South Africa’s Restated Trade Deficit, 2010 to October 2013 R60.12 bn • Lack of Exports R44.03 bn • Trade balance under pressure 2010 2011 • Weaker rand should raise demand for exports and lower demand for imports • Weak global demand not allowing rand to appreciate 2012 2013 (Jan to October) R(34.62) bn R(76.1) bn Source: SARS and Frost & Sullivan 13
  14. 14. Emerging Market Currency Devaluation Selected Emerging Economy Currencies, Year to Date 2013 Brazilian real Chilean peso Indian rupee Mexican peso Russian ruble South African rand -3.2% -8.9% -10.0% -11.8% -12.6% -15.4% Source: IMF and Frost & Sullivan 14
  15. 15. Slowdown In Many Emerging Markets Average GDP Growth for Most Regions Except Sub-Saharan Africa is Significantly Lower After the Financial Crisis 14.0 GDP Growth Average (%) 12.0 10.0 8.0 6.0 4.0 2.0 0.0 World European Union Emerging market and developing economies Central and eastern Europe 2005 to 2007 Average Developing Asia Latin America Sub-Saharan United States and the Africa Caribbean China 2013 to 2015 Average Source: IMF and Frost & Sullivan 15
  16. 16. Scenario Analysis - What to look out for in 2014
  17. 17. Continued Recession and Slower-thanExpected Recovery in Europe
  18. 18. 18 Source: SARS and Frost & Sullivan Aug-13 Jul-13 Jun-13 May-13 Apr-13 Mar-13 Feb-13 Jan-13 Dec-12 Nov-12 2200.0 Oct-12 Sep-12 Aug-12 Jul-12 Jun-12 May-12 Apr-12 Mar-12 Feb-12 Jan-12 Dec-11 2400.0 Nov-11 Oct-11 Sep-11 Aug-11 Jul-11 Jun-11 May-11 Apr-11 Mar-11 Feb-11 Jan-11 Exports ($ Million) General Decline in Exports to Europe 2600.0 18.5% DECLINE 3.1% DECLINE 2000.0 1800.0 1600.0 1400.0 1200.0
  19. 19. Export Decline of High Value Added Industries Manufacturing Exports to Europe, South Africa, Q1 and Q2, 2011, 2012 and 2013 $1.37 bn $1.31 bn $1.29 bn $1.15 bn $1.14 bn 1.8% $0.94 bn 17.2% 11.2% 17.6% Q1 and Q2 2011 Q1 and Q2 2012 Exports of Machinery Q1 and Q2 2013 Automotive Exports Source: Trademap and Frost & Sullivan 19
  20. 20. Major Effects of European Stagnation Stagnant export growth Rand to remain under pressure Increased supply-side inflation Current account to remain under pressure 20
  21. 21. What is the Likelihood of European Stagnation Scenario 4% 3% 2% 1% Most negative 0% -1% -2% Likelihood 21 Most likely GDP Growth Negative Effect European Stagnation
  22. 22. US Fed Tapering Not According to Plan
  23. 23. Major Effects of US Monetary Policy Uncertainty High Current Account Deficits will Place Added Pressure on Certain Emerging Economies, 2010-2013 Current Account Balance ($ Billion) 150.00 100.00 50.00 0.00 -50.00 -100.00 Brazil India Indonesia 2010 Malaysia 2011 2012 Russia South Africa Turkey 2013 Source: IMF and Frost & Sullivan 23
  24. 24. What is the Likelihood of Uncertainty in US Monetary Policy 4% As Planned 3% Uncertainty and delay 1% Most negative 0% -1% -2% Likelihood 24 Most likely GDP Growth Negative Effect 2%
  25. 25. Increased Domestic Issues and Aversion to Investment
  26. 26. Local Disruptions Contribute to Capital Flight Annual Protest Growth Rate, South Africa, 2008 to 2012 220 Protest Growth Rate (%) 200 180 160 140 120 100 2008 2009 2010 2011 2012 Source: Multi-Level Governmental Initiative and Frost & Sullivan Analysis 26
  27. 27. Major Effects of Domestic Disputes Capital flight Currency depreciation Lower FDI Negative impact on manufacturing sector Supply-side bottlenecks Inflationary pressure 27
  28. 28. What is the Likelihood of Domestic Disturbance 4% Most negative Spillover of violent labour action Violent labour action (manufacturing & mining 2% 1% 0% Loss of control of violent action and protest -1% -2% Likelihood 28 3% Most likely GDP Growth Negative Effect Seasonal strike action & protest
  29. 29. Scenario Analysis and Possible Outcomes
  30. 30. How Bad Could It Be? Percentage of Respondents Indicating the Economic Conditions in Their Country Are Undesirable Source: Pew Research Centre 30
  31. 31. Most Likely Outcome for 2014 Seasonal strikes, elections, US tapers to expectation, EM slowdown 4% 3% Most negative EU recession 2% 1% 0% Loss of control Uncontrolled violent of action and uprising violent action and protest -1% -2% Likelihood 31 Seasonal strikes, elections, serious uncertainty to Fed decisions, EM slowdown Most likely GDP Growth Negative Effect Violent protest, EU stagnation
  32. 32. Who is Frost & Sullivan
  33. 33. Introduction to Frost & Sullivan A trusted growth partner with 51 years of experience • Frost & Sullivan is a global growth consulting company that partners with clients to support them to grow their businesses • Founded in 1961 • 10,000+ clients worldwide, including emerging companies, SME, the Global 1000 and the investment community • We offer services ranging from industry research, growth consulting, corporate training and development, and events Growth Partnership Services • Growth Consulting African office based in Cape Town – Staff compliment of 60 focussed on Africa 33 GIL University Events
  34. 34. Introduction to Frost & Sullivan A wide industry and technology breadth uncovering new markets and creative growth ideas Automotive & Transportation Aerospace & Defense Measurement & Instrumentation Consumer Technologies Information & Communication Technologies Automotive Transportation & Logistics Energy & Power Systems Infrastructure Healthcare Minerals & Mining Chemicals, Materials & Food Electronics & Security Industrial Automation & Process Control 34
  35. 35. Service Offering Our exclusive growth system focuses on the whole growth cycle Implementation Consulting; Growth Team Membership; GIL University 10 Growth Processes; Growth Partnership Services Growth Partnership Services; Growth Workshops; Growth Excellence Matrix; Custom Research Building insights that define successful growth for industry leaders 35
  36. 36. Contact details Contacts Mani James Regional Director & Operations Manager Tel: Cell: E mail: +27 21 680 3208 +27 78 305 3124 Mani.James@frost.com Craig Parker Senior Economic Consultant Tel: E mail: +27 21 680 3292 Craig.Parker@frost.com Samantha James Corporate Communications Tel: E mail: 36 +27 21 680 3265 Samantha.James@frost.com

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