The quarterly Rapid-Growth Markets Forecast (RGMF) released yesterday by global tax and financial advisory firm EY has forecast the GDP growth for 25 rapid-growth markets (RGMs) next year, including Africa’s Ghana, Nigeria, South Africa and Egypt.
Globally, the report expects a weak outlook for domestic demand in RGMs, and subsequent weaker trade flows, to drive down GDP growth in these regions in 2014.
According to the RGMF, a flight from risk has driven sharp falls in many RGM currencies globally, along with sharp rises in bond yields and an underperformance of equities. As a result, the forecast expects growth to be at 4.7% for the RGMs next year, noticeably lower than the July predictions of 5.7%. The EY report states that this is driven primarily by downward revisions to Latin America and Asia.
“Despite steady growth over the past few years the RGMs were hit hard by external pressures including the prospect of tapering of quantitative easing in the US and turmoil in the financial markets,” states senior economic adviser to the RGMF, Rain Newton-Smith. “Weaker domestic demand and concerns over structural weaknesses will also dampen growth.”
According to Rajiv Memani, chair of the Emerging Markets Committee at EY, emerging market governments need to introduce structural reforms and ease regulatory restrictions to restore investor confidence and realise potential.
“There is an opportunity now to make progress as the US has recently delayed its quantitative easing programme to next year and there is also increased buoyancy in the developed markets, which is resulting in capital flows into the rapid-growth markets,” Memani stated. “It is critical for the rapid-growth markets to take full advantage of the depreciation in their currencies for benefit of their export-oriented sectors and become more competitive with required shifts in policy.”
South Africa’s growth will continue to be driven by domestic demand, even as inflation undermines consumption, according to EY’s RGMF.
“Although weaker than last year, domestic demand is expected to remain the primary source of growth, and GDP is expected to increase by 2% in 2013 and 3.2% in 2014,” stated the report.
Michael Lalor, Africa Business Centre leader at EY, said a comparison of economic risks across the 25 RGMs reveals some of the problematic areas for South Africa: mainly the current account deficit, relatively weak import cover and currency devaluation.
“In other areas though, we are relatively well positioned; in terms of government debt levels, for example, we are ranked somewhere in the middle relative to other markets,” stated Lalor.
He added that while South Africa needs to address serious economic risks, the country is not facing an economic crisis. “Furthermore, our finance cluster has an exceptional track record stretching back over the past two decades. This certainly provides confidence in the ability of our current finance minister and his team to effectively manage the South African economy over the next few years.”