Challenges and opportunities in global economies in 2017

Understanding global economics is something that most of us can never even aspire to. We look at our own lives and barely manage to understand where our own money goes, or why it buys less from one month to the next. Global economics has to be looked at from the macro level. Doing this requires either multiple sets of eyes or complete focus and dedication. Euromonitor International has both of these, a team of global analysts as well as the focus required to look at the broader picture.

In a white paper entitled Global Economies and Consumers in 2017, Euromonitor International looked at the trends which will influence economic growth through 2017. The panel of analysts included: Kasparas Adomaitis, Cities Manager; Sarah Boumphrey, Global Lead, Economies and Consumers; Indre Cesniene; Head of Industrial; Michelle Evans, Digital Consumer Manager; An Hodgson, Income and Expenditure Manager; Pavel Marceux, Households Specialist; Oru Mohiuddin, Strategy Analyst and Gne Saltenyte, Macro Analysis Manager.

Almost without fail these analysts comment on the impact political uncertainty and perceived instability will have on the global economy. Specific factors influencing this include The Trump Effect and Brexit. The proposed policies of President Donald Trump, as well as the dissatisfaction with his election are creating high levels of uncertainty leading to a lack of stability. Like it or not, The United States has been the stabilising factor in global economics for a number of years and this situation is leading to a state of minor panic.

Brexit on the other hand, could have wide-reaching implications, not only for Great Britain but for the countries of the European Union. Among the possible repercussions could be further exits from the Union by other countries who feel that they cannot justify continued participation.

Despite these and other uncertainties, Euromonitor’s research has shown that consumer expenditure is expected to rise by 2,3 per cent in real terms over the course of this year. Not surprisingly, the US is still the largest market, while China will show the largest increase in spending. Emerging and developing markets will grow by more than twice that of developed markets. This bodes well for the economies of Africa.

When looking at the uncertainties, there are a number of underlying factors which come into play. The Trump Effect is caused by the rhetoric engaged in by this controversial president. While much of it may remain just that, the threat has to be given some credence. The threat of import duties, reduction in volumes of trade or exiting trade agreements can have long-lasting and far-reaching implications which could see the United States going into full-scale recession – depending to what extent these threats become policy.

On the positive side governments around the world are focusing on infrastructural investments with the specific aim of boosting their economies. These developments are in different areas but all have the same goal, increased efficiency, productivity and general growth. The US is investing in airports, highways and pipelines, the UK in housing, roads and broadband connectivity, Canada in trade, transport and water systems. In emerging markets urbanisation is driving the need for infrastructure development.

Taking an even closer look, digital transformation is driving changes which impact the way we conduct business. Work-life balance is giving way to work-life integration. Essentially changing from a situation of keeping your work and life separate to a process of meshing one into the other. This means that work will be more about what people do, not where or when they do it. The focus is on the results, not the process or time spent doing it. It is about the interconnectivity of the world and working when the work is needed, not during a set period of hours in a day. This is resulting in the creation of virtual offices

As already mentioned, urbanisation is an increasing trend, but not only in developing or emerging countries. Cities are pivotal to the viability of any given economic region. In the developed world, cities populations are essentially young, in emerging markets, metropolitan areas account for the largest share of observed economic growth.

The Euromonitor International reports clearly show that the fastest growing cities will be in the Middle East and Africa. The world’s urban population is currently growing at around 2 per cent per annum. However some cities grow at an even faster rate. As an example, Abuja in Nigeria is forecast to grow at 4 per cent in this year. At the same time economic growth has also shifted into the emerging markets with average household incomes in Latin America, Sub-Saharan Africa and Asia Pacific countries rising rapidly.

The effects of political uncertainty cannot be overlooked, and it is more widespread than maybe initially be apparent. The situation in the United States could range from full-bodied recession – if all the planned policies are implemented – to a GDP growth rate of around 2,8 per cent. In Europe, right-wing parties are gaining ground. Brexit is expected to lower UK demand with a negative impact on European markets. The elections this year in France could have a direct influence on the future of the EU, adding impetus to the anti-EU Five Star Movement.

On the industrial front, global production output is expected to increase in 2017 reaching an annual growth of five per cent. Geographically, Asia-Pacific will lead the growth areas, while on the product level pharmaceuticals and primary commodities will lead the charge.

Raw materials, and in particular natural resources, have taken on a new level of importance. This is due to the pressure for companies to ensure sustainability. The drive towards reducing the impact on the environment is coming from consumers with the result that companies intent on remaining profitable are being forced to find greener methods of working and manufacturing. This in turn, is placing pressure on governments to create policies which are more green in their outlook. Part of the uncertainty caused by The Trump Effect was the belief that there would be a reversal of policies associated with the green movement. It appears that consumer pressure could prevent this from happening.

This is leading to a new dynamic where the consumer is the driver resulting in the emergence of the Circular Economy which focuses on sustainability both in terms of resources and waste. Consumers are placing pressure on corporations to concentrate not only providing better products with longer lifespans but also on end-of-life management solutions. This is not a one-sided relationship because the Circular Economy offers corporations cost-saving options.

Technology is another major driving factor. Consumers now have far more options to interact with products and each other regarding products. More consumers are digitally connected than ever. This has the added effect of turning more consumers into digital consumers meaning that they do more of their ‘shopping’ online. Digital connectivity has created new forms of commerce including everything from online streaming to fully-fledged online stores. Euromonitor International estimates that in 2017 as much as $1,3 trillion in goods will be purchased over the internet, representing 9,6 per cent of all goods sold. Of this as much as $31,4 billion will be apparel and footwear.

Moving down the chain to the household level, factors such as urbanisation, ageing and digitisation are having an increased effect, creating conditions for new trends. This is due, in part, to the increased spending power of the household but it is resulting in the need for more multi-functional appliances such as refrigerators connected to the internet or kitchen drawers with storage and cooling capabilities – both of which are becoming increasingly accessible. These are just two examples of this type of lifestyle appliance.

Another effect of increased urbanisation is increasing accessibility to education. This year the number of households globally with secondary level education or above will exceed 1 billion, almost half of the total number of households in the world. Better educated households drive rising consumption in emerging markets.

Despite the ‘power’ of consumerism, Euromonitor anticipates that consumer expenditure in 2017 will actually stagnate due to lower consumer confidence and increased pressure from debt. That said the expectation is that the emerging and developing markets should see growing consumer expenditure to strengthen from 3,3 per cent in 2016 to 3,8 per cent in 2017. Part of this will be driven by the empowerment of the Bottom of Pyramid (BOP) market through the provision of products and services which improve the lifestyle and livelihood of this part of the market. In this regard India, Nigeria, China, Indonesia and South Africa are the top five markets due to the size of their BOP, both in absolute terms and as a share of their adult population.

Population trends can have far-reaching implications due to the fact that they affect economic development, employment, income distribution and consumer market potential. In 2017 the world’s population will reach 7,4 billion with as much as 55 per cent living in urban areas – a total of 4,1 billion people. The largest percentage of growth has been experienced in the Middle East, Africa and Asia Pacific.

While advancing urbanisation can result in significant challenges such as overcrowding, housing shortages, lack of jobs, pollution and health risks, it also provides opportunities. One of the most significant is the fact that urban households are usually smaller with the result that they have higher purchasing power which consequentially creates new consumption trends and boosts the demand for goods and services. Urbanisation also gives better access to health services with the result that people live longer. Due to longer lifespans, the median age of the global population has now reached 30 years.

The advancing age of the global population presents a number of opportunities associated with increasing spending power and bringing with it new lifestyles, shopping and spending habits.

While there is no doubt that the global economy has slowed down and that political uncertainty exacerbates an already difficult situation, it is clear that the consumer still carries a increasing influence, sufficient to sway both big business and even government policy. In Africa, we find ourselves in the fortunate position of being in a market which is becoming ever more popular as an investment point for large multi-national corporations. Those companies which are prepared to take the risk will be able to reap the rewards, but they will need partners. Make sure you are prepared and sufficiently well informed to be able to be the right partner.