The emerging economies are set to grow much faster than the G7 countries (France, Germany, Italy, Japan, the UK, the US and Canada) over the next four decades, according to a report released by PwC.
Figures for average growth in GDP in terms of purchasing power parity (PPP) show Nigeria leading the way over the period 2012 to 2050, followed by Vietnam, India, Indonesia, Malaysia, China, Saudi Arabia and South Africa. The E7 countries could overtake the G7 economies as early as 2017 in purchasing power parity terms.
Stanley Subramoney, Strategy leader of PwC’s Africa South market, says: “The rapid convergence between these two groups of economies has been accelerated by the fact that the developed economies have been much slower to recover from the financial crisis of 2008-2009, while the emerging economies have been relatively insulated despite some slowdown in 2011-2012.”
The gap between the E7 and G7 countries is projected to continue to widen after 2017 – the E7 countries could potentially be around 75% larger than the G7 by the end of 2050 in PPP terms.
Nigeria could be the fastest growing country among the E7, states the latest World in 2050 report, due to its youthful and growing working population, but this does rely on using its oil wealth to develop a broader based economy with better infrastructure and
institutions and therefore support long-term productivity growth.
“The global financial crisis has hit the G7 much harder than the E7 in the short term,” says Subramoney. It has also caused downward revisions in the estimates of longer term trend growth in the G7, particularly those economies in Europe and the US that had previously relied on excessive public and private borrowing to drive growth.
Dr Roelof Botha, PwC Economic Advisor, says: “South Africa has been greeted with an abundance of good news in 2013, spearheaded by a new record high for the all share index (Alsi) on the JSE.
“During 2012, South Africa outperformed most of the world’s key equity markets, with the Alsi gaining almost 23% between the first week of January last year and early January 2013. This represents more than a doubling of the market capitalisation on the JSE from the low of the recession.”
The significance of a strong and sustained rise in the value of equity market capitalisation is related to its contribution to the so-called ‘wealth effect’, whereby the value of collateral is increased (for direct investments, unit trusts and pensions fund balancers alike). Combined with a healthy increase in the average dividend yield on the JSE and average formal sector salaries over the past two years, this effect usually stimulates consumption expenditure, particularly for durables and semi-durables, says Dr Botha.
“Add to this fortuitous development the prospect of record low interest rates remaining in place for most of 2013 (and possibly beyond), and it is clear that South African consumers may look forward to a continuation of rising per capita incomes over the next 12 months.”
In addition to the impressive performance of durable household consumption expenditure, formal sector salaries and the country’s leading business cycle indicator, the economy has also created more than half a million formal sector jobs since 2010.
The report predicts that by 2050 China, the US and India could be by far the largest economies, with a big gap to Brazil in fourth place, ahead of Japan. And by the same time, Russia, Mexico and Indonesia could be bigger than Germany or the UK; Turkey could overtake Italy; and Nigeria could rise up the league table, as could South Africa and Vietnam in the longer term.
Although the E7 countries are set to overtake the G7 countries in terms of their overall size and rates of growth, they are still expected to trail significantly behind the G7 in terms of GDP per capita. The US is projected to retain its top position in this group, while large emerging countries, such as China, Brazil and India still sit at the bottom of the income table.
Subramoney concludes: ‘The shift in the global economic centre of gravity is clear; but there are still major challenges for the emerging economies to sustain their recent strong growth. At the same time, there are huge opportunities for established companies in the emerging markets – but also some competitive challenges from fast-growing emerging market companies. Governments also face huge challenges, not least in relation to global warming as a result of this rapid pace of economic development.” ❐