EMERGING MARKETS ECONOMIC OUTLOOK

Transcription

1 Q EMERGING MARKETS ECONOMIC OUTLOOK The Good, the Bad and the Ugly: EMs in an era of low oil prices Plunge in oil prices will provide boost to most EMs but the impact will vary between countries Asia and Central Europe likely to be the big winners but Russia and Venezuela are set for deep recessions Big movements in interest rates seem unlikely but India could surprise by loosening more than most expect

2 Cover design by Bobby Gunthorpe. Cover contains visual elements used under licence from: Getty Images & Shutterstock. Final responsibility for the content of this review rests with Capital Economics Ltd. Disclaimer: While every effort has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Capital Economics Limited and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions. This document is a piece of economic research and is not intended to constitute investment advice, nor to soliciting dealing in securities or investments Capital Economics.

3 EMERGING MARKETS ECONOMIC OUTLOOK Q The Good, the Bad and the Ugly: EMs in an era of low oil prices th January Table of Key Forecasts Overview China Growth to slow further despite more rate cuts Other Emerging Asia An EM bright spot Latin America A limp recovery Emerging Europe Russian crisis to drag regional growth down Middle East and North Africa Gulf entering an era of softer growth as oil boom ends Sub-Saharan Africa Slowest regional growth since the late s Table of Key Indicators About this publication The Emerging Markets Economic Outlook contains analysis and forecasts for the six emerging regions we cover: China, Emerging Asia, Latin America, Emerging Europe, the Middle East & North Africa, and Sub-Saharan Africa. It also contains economic and market forecasts for selected countries. For full forecasts and detailed analysis of any of the emerging markets that we cover, please refer to the relevant regional services. The emerging economies covered in these services are listed in the Key Indicators table on page. Emerging Markets Economic Outlook Q

4 Selected Key Forecasts The following tables contain forecasts for selected economies and regional aggregates. For detailed forecasts of the emerging economies we cover, please refer to our regional services. TABLE : REAL GDP & INFLATION Share of GDP Inflation () % y/y World () e f f e f f Emerging Asia () China India South Korea Latin America Brazil Mexico Argentina () Emerging Europe Russia Turkey Poland Mid. East & N. Africa Saudi Arabia Egypt Sub-Saharan Africa South Africa Emerging Markets G Countries US Euro-zone Japan UK () Incl. China. () %,, PPP terms. () % y/y annual avg. () Historical data are official figures, forecasts are for CE proxies. Chart : Real GDP (%y/y) Chart : Consumer Prices (%y/y) - - e f f - - e f f Emerging Asia* Latin America Emerging Europe Mid. East Sub-Saharan & N. Africa Africa Emerging Asia* Latin America Emerging Europe Mid. East Sub-Saharan & N. Africa Africa Sources Thomson Datastream, Capital Economics; *Incl. China Sources Thomson Datastream, Capital Economics; *Incl. China Emerging Markets Economic Outlook Q

5 TABLE : SELECTED CENTRAL BANK POLICY RATES (%) Emerging Asia Policy Rate End Latest ( th Jan.) Last Change Next Change Forecasts End End China m B mark Dep... Down bp (Nov ) Down bp (Q ).. India Repo Rate.. Up bp (Jan ) Down bp (Q ).. Korea Base Rate.. Down bp (Oct ) Up bp (H ).. Latin America Brazil Selic Rate.. Up bp (Dec ) Up bp (Q ).. Mexico O/N Repo Rate.. Down bp (Jun ) Down bp (H ).. Emerging Europe Russia -day Repo Rate.. Up bp (Dec ) Down bp (Q ).. Turkey O/N Lending.. Down bp (Aug ) None on horizon.. -day Repo Rate.. Down bp (Jul ) None on horizon.. Poland Repo Rate.. Down bp (Oct) Up bp (H ).. Mid. East & Africa Egypt O/N Deposit Rate.. Up bp (Jul ) Down bp (H ).. South Africa Repo Rate.. Up bp (Jul ) Up bp (Mar ).. Japan Overnight Rate Down bp (Dec ) None on horizon US Fed Funds Target Down bp (Dec ) Up bp (Mar ) -..- Euro-zone Refinancing Rate.. Down bp (Sep ) None on horizon.. TABLE : SELECTED FX RATES PER USD & STOCK MARKETS Forecasts Forecasts Currency End Latest End End Stock Market End Latest End End ( th Jan) ( th Jan) Emerging Asia China CNY.... SH Comp.,,,, India INR.... Sensex,,,, Korea KRW,,,, KOSPI,,,, Latin America Brazil BRL.... Bovespa,,,, Mexico MXN.... Bolsa,,,, Emerging Europe Russia RUB.... MICEX,,,, Turkey TRY.... ISE,,,, Poland () PLN.... WIG Index,,,, Mid. East & Africa Saudi Arabia SAR.... TADAWUL,,,, Egypt EGP.... EGX,,,, South Africa ZAR.... JALSH,,,, Japan JPY.... Nikkei,,,, US USD S&P,,,, Euro-zone EUR.... DAX,,,, () Local currency per USD, except EUR which is USD per euro. () PLN per euro Emerging Markets Economic Outlook Q

6 Overview The Good, the Bad and the Ugly: EMs in a world of low oil prices The sharp fall in oil prices will provide a In aggregate, we expect the boost to growth in welcome boost to growth in the majority of oil consumers to be broadly offset by a drag on emerging economies in, but at the cost of growth from oil producers, with the result that slower growth in much of the Middle East and overall EM growth remains unchanged at deepening crises in a handful of EMs, notably around % in. This is likely to remain the Russia and Venezuela. The net result is likely new normal for growth over the coming to be that aggregate EM growth is broadly years. (See Chart.) Asia will remain the unchanged from last year. fastest growing region, while the deepening The big winners from low oil prices will be those EMs that are large importers of energy. crisis in Russia will ensure Emerging Europe stays the weakest performer. (See Chart.) This covers much of the emerging world, We foresee a further slowdown in China, with including most economies in Asia and Central continued strains in the property sector (see Europe, but also Turkey, South Africa and Chart ), but believe that policymakers there Brazil. (See Chart.) These economies will see have room to prevent a hard landing. an improvement in their terms of trade as a result of falling oil prices, which in turn will provide support to domestic demand. For Turkey, South Africa and, in particular, India, lower oil prices will also help to ease concern over large current account deficits. The pain from lower oil prices will be concentrated in EMs that are large energy exporters. (See Chart.) Most of these are well placed to withstand a fall in oil revenues. The Gulf economies ran large surpluses and accumulated foreign assets when oil prices were high, which will help to cushion the blow now prices have fallen back. In Mexico, lower oil prices will be counterbalanced by a continued recovery in the US and should not prevent growth picking up in. There are exceptions though. The economic consequences for Russia of the collapse in the ruble in the final weeks of last year will become clear over the coming months. We expect a deep recession this year. Venezuela and several economies in West Africa, including Angola, are in trouble too. Currency weakness will push inflation sharply higher in some places, pushing up regional aggregate inflation rates. But these are the exceptions. For most EMs, lower oil prices will bring inflation down. (See Charts and.) Meanwhile, fears that lower oil prices could trigger a damaging bout of deflation in parts of Asia and Central Europe are overdone. For the most part, any dip into deflation in these countries will be temporary and should give a boost to real incomes and thus growth. In general, we do not expect big moves in EM interest rates in. (See Chart.) With inflation low, central banks in much of Asia will keep rates on hold this year, and some will cut. Although policy in Brazil, Turkey and Russia will remain tight, we suspect that the big rate hikes here have happened. Elsewhere, monetary policy in Central Europe will remain extremely loose, but we do not envisage further rate cuts. The one EM to watch is India, where we think that interest rate cuts could be larger than expected. Emerging Markets Economic Outlook Q

7 Overview Charts Chart : Net Fuel Imports (% of GDP, ) Chart : Net Fuel Exports (% of GDP, ) Tha. Kor. Ken. Ind. Chl. Tur. Phi. SA Chn. Pol. Brz. Arg. Ang. Sau. Ven. Nga. Rus. Col. Ecu. Gha. Mal. Idn. Mex. Chart : Emerging Market GDP (% y/y) Chart : Emerging Market GDP by Region (% y/y) CE Forecast - - Emerging Asia* e f f Latin America Emerging Europe Mid. East & N. Africa Sub-Saharan Africa - - Chart : China Developers Inventories of Unsold Residential Property (million units) Chart : EM Consumer Prices* (% y/y) *excludes Venezuela CE Forecast.... Chart : Consumer Prices (% y/y) Chart : Policy Rates (%, Simple Average) e f CE Forecasts Emerging Europe Emerging Asia Latin America Turkey India Indonesia Brazil South Africa Sources Thomson Datastream, IMF, Capital Economics; *Incl. China Emerging Markets Economic Outlook Q

8 China Growth to slow further despite more rate cuts We expect China s growth to slow further over the next two years. That said, policymakers have plenty of tools with which to shore up growth if necessary. This, along with the relatively bright outlook for consumption, should reduce downside risks. Our China Activity Proxy suggests that growth recovered slightly at the start of Q, on the back of strong service sector activity. (See Chart.) Nonetheless, we expect it to resume its gradual downwards slide as overcapacity across a number of industries continues to weigh on investment. Property, in particular, is likely to remain a drag. While more accommodative policy may provide some support to sales, a large glut of unsold properties leaves limited upside for construction activity. (See Chart.) be included in the budget, are likely to result in a tighter fiscal stance overall. More positively, low oil prices should give a boost to spending. In, China s net imports of oil cost the equivalent of.% of GDP. If global oil prices remain at or below $ per barrel, the economy as a whole will be better off to the tune of more than % of GDP. For the same reason, inflation is likely to ease further. (See Chart.) Many are concerned about deflation, but most firms and households should find themselves better off. Finally, while slowing investment growth is likely to remain a drag on imports, we expect exports to remain healthy. (See Chart.) With lower commodity prices further reducing the import bill, the current account surplus is likely to rebound. With employment growth strong (see Chart ), we think the government will feel comfortable allowing this slowdown and will lower the growth target for to about.%. As such, we are not expecting fireworks from policymakers. The People s Bank is likely to follow the November benchmark rate cut with more cuts and liquidity injections but these will be offset by tougher banking regulations to slow shadow banking. With credit risks still rising, there is little appetite for a sustained rebound in credit growth. (See Charts and.) Meanwhile, although the government says it will pursue proactive fiscal policy once again this year and is likely to step up budgeted spending, new fiscal rules, which require that the two thirds of spending that currently takes place outside the formal budget This will put upwards pressure on the renminbi. However, it was one of the world s strongest-performing currencies in and the scope for significant gains against the dollar is limited from here. (See Chart.) Indeed, while we expect the renminbi to sustain its gains in trade-weighted terms and to end the year stronger against the dollar too, short-lived bouts of depreciation against the US currency are likely. TABLE : CHINA Ave. % change on a year earlier Forecasts e GDP..... Cons. prices..... Current account ()..... () As a % of GDP Emerging Markets Economic Outlook Q

9 China Charts Chart : China Activity Proxy & GDP (% y/y) Official GDP (latest = Q). Chart : Developers Inventories of Unsold Residential Property (million units). CE China Activity Proxy (latest = Nov.) SARS Chart : New Urban Jobs (millions) Chart : Contribution to Annual Credit Growth (%-pts) Official Target Actual (by year-end) Actual (by end-sep.) Other elements of total social financing Trust loans & bankers' acceptance bills Bank loans Chart : Credit & GDP (% y/y) Chart : Consumer Prices (% y/y) Credit growth (latest = Nov.) GDP growth (nominal, latest = Q) Consumer prices Consumer prices excl. food CE forecasts Chart : Merchandise Trade ($bn, seas. adj.) Exports Imports Chart : RMB Exchange Rates Nominal Trade-weighted Exchange Rate (Jan. =, LHS) Dollar Spot Rate (inverted, RHS) Renminbi stronger Sources Thomson Datastream, CEIC, Bloomberg, Capital Economics Emerging Markets Economic Outlook Q

10 Other Emerging Asia An EM bright spot Growth in Emerging Asia (excluding China) is Inflation across Emerging Asia has fallen back likely to accelerate over the next couple of sharply in recent months and looks set to years. (See Chart.) Most countries in the remain low throughout the forecast period. region will benefit from lower global oil prices There are few signs that countries are running through an improvement in their terms of out of spare capacity. The recent fall in trade. Lower oil prices will also help keep commodity prices should also help keep inflation low, which will allow monetary inflationary pressure low. (See Chart.) policy to remain loose. This should all come against a backdrop of gradual export recovery. With inflation set to remain subdued, monetary policy is likely to remain loose over The Newly Industrialised Economies (Hong the next couple of years. We have interest rate Kong, Singapore Taiwan and Korea) should see cuts pencilled in for India, Indonesia and a decent improvement in growth over the next Vietnam. Although we still expect rate hikes year. (See Charts &.) Not only are they elsewhere as policymakers move to stem credit best-placed to benefit from an improvement in growth, the pace of tightening is likely to be US growth, but they should all be big winners gradual and may not start until. (See from falling oil prices. (See Chart.) Chart.) The outlook for South East Asia is mixed. The The two exceptions are Hong Kong and Philippines is likely to remain a star performer, Singapore, which, because of their currency while Malaysia looks set for a couple of years regimes are forced to adopt a similar monetary of decent growth. In contrast, Indonesia is policy stance to the US Federal Reserve. likely to disappoint against a backdrop of weak Market interest rates in both economies are commodity prices and high interest rates. And likely to rise by around basis points by the although growth in Thailand should accelerate end of next year. (See Chart.) after the political crisis of last year, it is still likely to be South East Asia s worst performer. One of the key risks facing the region is that rate hikes in the US acts as a trigger for Growth in India is likely to accelerate. Inflation renewed market turmoil. Countries with has recently fallen to multi-year lows, leaving external deficits, notably Indonesia (see Chart some scope for policy loosening. Meanwhile, ), could be forced to hike rates aggressively in the government s reform agenda is building the event of another EM currency sell-off. That momentum. Nevertheless, hopes of wide- said, with foreign currency debt relatively low ranging reforms are unlikely to be realised, and and foreign exchange reserves high, a full growth is still likely to remain below the rates blown crisis is unlikely. achieved during the boom years of -. TABLE : SELECTED ASIA-PACIFIC World GDP Inflation Share () e f f e f f Emerging Asia () India Indonesia South Korea Thailand () Share of world GDP in PPP terms. () Excl. China Emerging Markets Economic Outlook Q

11 Other Emerging Asia Charts Chart : Emerging Asia (ex. China) GDP (% y/y) Chart : GDP (% y/y) CE Forecast South East Asia* NIEs** CE Forecasts * Malaysia, Philippines, Indonesia & Thailand ** Hong Kong, Singapore, Korea & Taiwan Chart : GDP (% y/y) Chart : Net Oil Imports (% of GDP) - China India ASEAN- NIEs Sin. Tai. Tha. Kor. Ind. HK Phi. Idn. Mal. Vie. Chart : Global Commodity Prices & Emerging Asia Consumer Prices (% y/y) Chart : Change in Main Policy Rate (%-point, Now-End ) If commodity prices stay at their current level S&P GSCI (LHS) Consumer prices (RHS) Phi. Kor. Tha. Mal. Tai. Idn. Ind. Vie Chart : Interest Rates (%) Chart : Current Account Balance (% of GDP) US Fed Funds HIBOR SIBOR Latest ( Qtr Avg.) CE Forecast - - Sin. Tai. Kor. Mal. Phi. Tha. HK Ind. Idn. Sources Thomson Datastream, Capital Economics Emerging Markets Economic Outlook Q

12 Latin America A limp recovery After a torrid, economic growth in Latin America is likely to improve in -. But we expect the pace of the recovery to be weak compared to previous cycles. current account deficits may become more difficult. That is likely to weigh on domestic demand, meaning that deficits across the region have to narrow. (See Chart.) Regional GDP growth was probably just.% last year, the weakest annual rate since the Global Financial Crisis. (See Chart.) Low oil prices will create divergences within the region in -. The biggest beneficiary will be Chile. Brazil, Argentina and Peru should all benefit too. However, the losers are likely to dominate the aggregate picture. Things could turn ugly in Venezuela and Ecuador. Colombia and Mexico will suffer too, albeit to lesser extents. (See Chart.) Meanwhile, the wider commodities boom that lifted regional growth in recent years has now ended. While the bulk of the falls in commodity prices has probably happened, rapid price growth is unlikely. Softer Chinese demand will weigh on commodity export volumes too. This will constrain income growth in the region s commodity-dependent economies. (See Chart.) External financing conditions are likely to start tightening this year too as the US raises interest rates. As a result, funding the region s large The fact that growth is likely to remain below trend in most places should mean that inflation edges down. (See Chart.) That should allow monetary and fiscal policy to stay loose in most countries. (See Charts &.) The exception is Brazil. A more orthodox approach to policymaking in President Rousseff s second term should mean that both monetary and fiscal policy is tightened in response to above-target inflation. One wildcard for - is Argentina. A shift towards more market-friendly policymaking is possible if the general election in October triggers a change of government. Some small policy tweaks could lead to a significant upturn in medium-term growth prospects. In summary, we expect a limp recovery in - for the region. Economic growth is likely to remain weaker than the previous decade averages in most places. The exception is Mexico, where faster growth in the US and structural reforms mean that it should grow at a faster pace than in the past decade. (See Chart.) TABLE : SELECTED LATIN AMERICA World GDP Inflation % y/y Share () e f f e f f Latin America Brazil Mexico Argentina () Colombia Chile () Share of world GDP in PPP terms. () Forecasts are for Capital Economics proxies Emerging Markets Economic Outlook Q

13 Latin America Charts Chart : Latin America GDP Growth Chart : Net Oil Balance (, % of GDP) Decade Avg. CE Est. Oil Surplus Oil Deficit Ven. Ecu. Col. Mex. Arg. Bra. Per. Chl. - - Chart : Net Commodity Export Revenues (% of GDP, e) Chart : Current Account Balances (% of GDP) Ven. Chl. Ecu. Col. Per. Bra. Arg. Mex. - - e f f Mexico Chile Brazil Colombia Peru - - Chart : Consumer Prices (% y/y) Chart : Policy Interest Rates (%) e f f Current Capital Economics End- Market Pricing End- Brz. Chl. Mex. Col. Per. Ecu. Bra. Col. Per. Chl. Mex. Chart : Public Sector Budget Deficit (% of GDP) Chart : GDP (% y/y) e f f Brz. Chl. Col. Mex. Per e f f Average - Per. Arg. Ven. Col. Ecu. Chl. Brz. Mex Sources Thomson Datastream, Bloomberg, CE Emerging Markets Economic Outlook Q

14 Emerging Europe Russian crisis to drag regional growth down The fallout from Russia s economic crisis means GDP in Emerging Europe will contract in for the first time since. A deep recession in Russia is almost inevitable. But while the rest of the region will suffer a hit to exports, it shouldn t be a disaster. Indeed, the economies of Central Europe are likely to see steady, if unspectacular, growth in -. GDP in Emerging Europe grew by just.% y/y in Q, its weakest pace since early. And our GDP Tracker suggests that the region s economy remained weak at the start of Q. (See Chart.) This was mainly due to a slowdown in Turkey as well as persistent weakness in Russia. (See Chart.) Of course, this all predates Russia s crisis at the end of. Given our view that oil prices will stay low, we don t think the ruble will recover its losses. As a result, we expect inflation in Russia to rise further, interest rates to stay high, and the economy to enter a recession. For now, we have pencilled in a % fall in output in. (See Chart.) The rest of the region s exports will suffer from this. But for most countries, exports to Russia are fairly small. (See Chart.) All told, we think the impact on exports could knock.- %-pts off GDP growth in the rest of the region in. This is painful, but not a disaster. Perhaps more worrying for most countries is the weakness in the euro-zone, the region s largest export market. We expect sluggish growth in the single currency bloc in -, which is likely to lead to only a modest pickup in Emerging Europe s exports. (See Chart.) We re more upbeat about the prospects for domestic demand. Fiscal austerity is easing, labour market conditions are strengthening, and consumer and firms confidence is rising. Meanwhile, large amounts of spare capacity, as well as the plunge in oil prices, will keep inflation low. (See Chart.) This will boost real incomes and allow central banks to maintain loose monetary conditions. (See Chart.) Turkey is an exception. There, capacity constraints will keep inflation high, in spite of the fall in oil prices. This, coupled with a large current account deficit, means monetary conditions will remain tight. Bringing this all together, we think regional GDP will fall by.% in. Russia will suffer a severe recession and Turkish growth will be disappointingly weak. But growth in Central Europe should be better than in recent years, at around %. (See Chart.) TABLE : SELECTED EMERGING EUROPE World GDP Inflation % y/y Share () e f f e f f Emerging Europe Russia Turkey Poland Czech Republic Hungary () Share of world GDP in PPP terms. Emerging Markets Economic Outlook Q

15 Emerging Europe Charts Chart : Emerging Europe GDP & CE GDP Tracker (% y/y) CE Emerging Europe GDP Tracker Emerging Europe GDP Chart : GDP (% y/y) *Cze, Hun, Pol & Slk Central Europe* - Turkey - Russia Chart : Russia GDP (% y/y) Chart : Exports to Russia (% of GDP, ) CE Forecast Chart : CEE* Exports & euro-zone GDP (% y/y) (*) Avg. of Emerging Europe, excl. Russia, Turkey & Ukraine Euro-zone GDP (LHS) CEE* Exports (RHS) CE Forecasts Chart : Consumer Prices (% y/y) Turkey Central Europe South East Europe CE Forecasts - Chart : Policy Interest Rates (%) Romania Hungary Poland Czech CE Forecasts Chart : GDP (% y/y) Russia Central Europe Turkey CE Forecast Sources Thomson Datastream, Capital Economics Emerging Markets Economic Outlook Q

16 Middle East and North Africa Gulf entering an era of softer growth as oil boom ends The sharp slide in oil prices is likely to result in Fears have surfaced that the fall in oil prices a period of softer, rather than an outright could lead to renewed debt problems in collapse in, growth in the Gulf economies over Dubai. (See Chart.) For now, we don t think the coming years. In contrast, we think that that we re about to witness a repeat of the growth in North Africa should strengthen in Emirate s debt crisis in. But a prolonged -. period of low oil prices could see some quasi- Growth in the Gulf appears to have held up public companies struggle to repay their debts. well over the course of. But the recent Elsewhere, we remain upbeat on the prospects plunge in oil prices has cast a cloud over the for the North African countries (Egypt, outlook. Equity markets may have tumbled Morocco and Tunisia). Their governments (see Chart ), but policymakers have largely have embarked on much-needed economic taken the fall in oil prices in their stride. reforms and recent investments should support This is not too surprising. After all, the Gulf strong growth in manufacturing sectors. economies are in a stronger position than other There are, of course, risks to the outlook. oil producers to absorb the hit to their income. Parliamentary elections in Egypt bring the Admittedly, most countries are likely to run threat of fresh civil unrest and large twin budget and current account deficits this year. budget and current account deficits remain a (See Chart.) But large savings and low debt concern. (See Chart.) However, lower oil levels mean that these should be easily prices will provide some relief. This, combined financed for years to come. (See Chart.) with IMF deals, financing from the Gulf and a Accordingly, while government spending looks set to slow (see Chart ) for the case of Saudi Arabia), policymakers won t be forced to tighten fiscal policy aggressively. Meanwhile, the Gulf is likely to resist pressure from other OPEC members to cut oil output in order to return of foreign investors to the region (see Chart ), mean that external financing concerns should be limited. At the same time, the fall in oil prices will improve fiscal positions, even if subsidy cuts mean that it won t necessarily lead to lower inflation. shore up prices. The upshot is that while we All told, we think the North African economies think growth in the Gulf will weaken in - should start to outperform their oil-rich, we don t expect it to collapse. neighbours in the Gulf in. (See Chart.) TABLE : SELECTED MIDDLE EAST AND NORTH AFRICA World GDP Inflation % y/y Share () e f f e f f Mid. East & N. Africa Saudi Arabia Egypt UAE Morocco () Share of world GDP in PPP terms. Emerging Markets Economic Outlook Q

17 Middle East and North Africa Charts Chart : MSCI GCC (Local Currency, st Jan. = ) Jan- Apr- Jul- Oct- Jan- Chart : Oil Price Needed to Balance Current Account & Budget Positions () Oil at $pb Budget Current Account Bahrain Oman Saudi UAE Kuwait Qatar Chart : SWF Assets & Gov t Debt (Latest, % of GDP) Sovereign Wealth Fund (SWF) Assets Gross Government Debt * SWF assets are those held at the Saudi Arabian Monetary Agency Kuwait UAE Saudi* Qatar Bahrain Chart : Saudi Arabia Government Spending (% y/y) Budget Actual Chart : Dubai GRE Debt by Maturity (US$bn) Chart : Cur. Acc. & Bud. Deficits. (Avg. -, % of GDP) Restructured Loans Other Debt Current Account Budget Beyond Egypt Morocco Tunisia Chart : Net Foreign Purchases of Egyptian Stocks (EGP bn) Chart : GDP (% y/y) Six out of seven months of net foreign purchases - - GCC North Africa CE F'casts e Sources CEIC, Thomson Datastream, IMF, Capital Economics Emerging Markets Economic Outlook Q

18 Sub-Saharan Africa Slowest regional growth since the late s Sub-Saharan Africa s (SSA s) economy is likely the upper limit of central bank target ranges. to have grown by around % in. (See (See Chart ). Interest rates are likely to rise in Chart.) But growth looks set to slow this year these countries, although the increase should to the weakest pace since the late s. be relatively gradual and rates will remain There are a range of causes of this weakness, below the levels seen in oil-exporting but a common theme is that the global economies with balance of payment problems. commodities boom has come to an end. (See Chart.) Granted, most countries in the region are net oil importers, so stand to benefit from the recent slump in oil prices. But a number of SSA s largest economies Angola, Nigeria and Ghana will be hit hard. (See Chart.) In Nigeria and Angola, current account surpluses are likely to turn into deficits. And Ghana will face continued balance of payments problems. (See Chart.) We suspect that Nigeria s and Angola s central banks will allow their currencies to weaken further, having previously tied them to the US dollar. This is likely to push up inflation, prompting interest rate hikes. While we do not expect further hikes in Ghana, monetary policy there will remain tight. Elsewhere, in net oil importing countries, lower global oil prices will put downward pressure on inflation. But we think this will be partly offset by currency weakness. The result is likely to be that inflation remains close to As tax revenues from commodity production fall, budget positions in commodity-dependent countries (such as Angola and Nigeria) will deteriorate. (See Chart.) Governments in South Africa and Ghana have already announced plans to rein in their deficits in the coming years. In contrast, Nigeria s government is likely to be wary of announcing drastic cuts to spending ahead of February s general election. So the bulk of cuts there are likely to be introduced later next year. Against this backdrop, growth in SSA is likely to slow next year, while growth elsewhere in the world picks up. (See Chart.) We expect the worst performer in the region to be Angola, which we forecast to slip into recession. That said, the long-run outlook remains strong for most economies in SSA. Demographic trends are likely to boost the labour force. And given that per capita GDP is generally low, there is still plenty of scope for catch-up growth. (See Chart.) TABLE : SELECTED SUB-SAHARAN AFRICA World GDP Inflation % y/y Share () e f f e f f Sub-Saharan Africa Nigeria South Africa Kenya Ghana () Share of world GDP in PPP terms. Emerging Markets Economic Outlook Q

19 Sub-Saharan Africa Charts Chart : GDP (% y/y) Chart : Net Fuel Exports (, % of GDP) Period ave Chart : Current Account Balances (% of GDP) Chart : Consumer Prices (% y/y) f e f f Inflation Target Ranges * Uganda's inflation target is "about % or less" - - Angola Ghana Kenya S. Africa Nigeria - - Ghana Nigeria Kenya S. Africa Uganda* Chart : Central Bank Policy Rates (%) Chart : Government Fiscal Balances (% of GDP) Ghana Nigeria S. Africa Kenya CE Forecasts e f f Angola Kenya Uganda South Africa Nigeria Chart : GDP (% y/y) Chart : Potential GDP Growth (% y/y, Next Years) SSA World CE Forecasts - - Nga. Gha. Tan. Moz. Ken. Uga. Zam. Bot. Mau. Ang. SA Sources Thomson Datastream, IMF, Bloomberg, Capital Economics Emerging Markets Economic Outlook Q

20 Share of World Output (%) () KEY INDICATORS (, UNLESS OTHERWISE STATED) GDP ($bn, Mkt Ex. Rates) Population (mn) GDP per cap. ($, Mkt Ex. Rates) GDP per cap. (% of US) Stock Mkt. Cap. ($bn, Dec. ) Emerging Europe Russia.,, Turkey., Poland., Ukraine., Czech Republic., Romania., Hungary., Slovakia., Bulgaria., Croatia., Lithuania., Latvia., Estonia., Latin America Brazil.,, Mexico.,, Argentina., Colombia., Venezuela., Peru., Chile., Ecuador., n/a Bolivia., n/a Uruguay., n/a China Mainland China.,,,, Hong Kong.,, Emerging Asia India.,,,, South Korea.,,, Indonesia., Taiwan., Thailand., Pakistan., Malaysia., Philippines., Singapore., Vietnam., Sri Lanka., Mid. East and N. Africa Saudi Arabia., Egypt., Algeria., n/a United Arab Emirates., Qatar., Morocco., Kuwait., Tunisia., Oman., Lebanon., Jordan., Bahrain., Sub-Saharan Africa South Africa., Nigeria., Angola., n/a Ghana., Kenya., Uganda. Cote d Ivoire., n/a Zambia., Sources Thomson Datastream, IMF, Bloomberg. () Share of world GDP in PPP terms (IMF Forecasts). Emerging Markets Economic Outlook Q

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