Global Economic Outlook 20142020

Beyond the Crisis:

Sustained Global
Economic Growth?

Beyond the Crisis: Sustained Global Economic Growth?

Table of Contents

Executive Summary

Global Economic Outlook: Renewed Normal

The Next Wave of Growth

Wildcards 15
Conclusion: Renewed Normal Creates
Business Opportunities

17

Executive Summary
The global economy is finally beginning to stabilize following the Global Financial Crisis
and Great Recession. Our base case outlook for average annual real growth between 2014 and
2020 is between 3 and 4 percent.
We expect emerging economies to continue to grow by more than 4 percent (contributing
$6.5 trillion to global growth through 2020), while the growth rate of advanced economies
is forecast to exceed 2 percent (contributing $6.6 trillion through 2020) for the first time since
2010. The United States is leading the recovery among advanced markets, and we expect that
it will be a significant contributor to global growth through 2020.
However, we anticipate economic performance will diverge within both the emerging and
developed market groupings in 2014 based on key policy choices, as governments grapple
with structural reforms in the context of reduced fiscal and monetary stimulus.
We expect the next wave of global growth to come from seven key emerging markets. We
call these countries the 2020Seven, consisting of China, Chile, Malaysia, Peru, Poland,
the Philippines, and Mexico. In addition, a variety of strong-performing and high-potential
Sub-Saharan Africa markets will begin to contribute more to the global economy.
Despite this benign base case medium-term global outlook, there are several significant
risksboth economic and politicalthat could derail sustained global economic growth.
Among them are unintended consequences of tapering by the U.S. Federal Reserve, instability
in emerging markets, weakness in the eurozone, deflation in developed markets, a hard
landing in China, natural resource supply shocks, and geopolitical flare-ups.

Beyond the Crisis: Sustained Global Economic Growth?

Global Economic Outlook: Renewed Normal

The global economy is finally transitioning from the Great Recession to a period of more stable
growth. In the period between 2014 and 2020, we anticipate a return to annual global growth of
approximately 3 to 4 percent (see figure 1).1 The United States is returning to growth, but Europe
has yet to fully address the core sources of its ongoing financial and economic fragility, and
Japans continued economic recovery will be determined by structural reforms in 2014 that
remain highly uncertain given domestic political constraints. Emerging markets are experiencing
a slowdown driven by near-term cyclical and long-term structural factors, but they are still growing
relatively quickly. As a result of this economic growth, international flows of goods and capital will
surpass their pre-Great Recession levels by 2020. Looking ahead, global foreign direct investment
(FDI) will grow from $1.3 trillion in 2013 to about $2.2 trillion in 2020.2 International trade flows are
also recovering, although at a slower pace than many economists had predicted. The World Trade
Organization (WTO) predicts that global trade flows will grow 4.7 percent this yearbelow the
20-year average of 5.3 percent annual growth.3 The two large regional trade agreements currently
under negotiationthe Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment
Partnership (T-TIP)could be critical to unlocking further growth in global trade flows.
Although the global economy is returning to a period of stronger growth, identifying specific
opportunities will be more difficult than in the previous decade. Through 2020, neither subset
of economiesadvanced nor emergingwill be as monolithic as in the recent past. As macrolevel fiscal and monetary supports recede, growth will be differentiated by the substance of
national-level structural reforms and the quality of policy decisions.

Figure 1
Global growth will stabilize
Real annual GDP growth rate
%

Historical growth

Oxford Economics

IMF

EIU

Forecast

4
3
2
1
0
1
2

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f 2019f 2020f
Note: Historical growth is an unweighted average of the three sources GDP data.
Sources: Oxford Economics, IMF World Economic Outlook (April 2014), IMF World Economic Outlook Update (July 2014), EIU; A.T.Kearney analysis

Economist Intelligence Unit, EIU Country Data; International Monetary Fund, World Economic Outlook, April 2014; International
Monetary Fund, World Economic Outlook Update, July 2014; Oxford Economics, Global Economic Databank
Oxford Economics, Global Economic Databank, accessed on 5 August 2014

World Trade Organization, Modest Trade Growth Anticipated for 2014 and 2015 following Two-Year Slump, press release no. 721,
14 April 2014

Beyond the Crisis: Sustained Global Economic Growth?

Further complicating the global economic outlook is the fact that the drivers of global economic
growth are shifting again, as the world enters a new era after a decade of instability (see figure 2).
In The Great Bubble from 2003 to 2007, advanced economies powered global growth while
the emerging economies also grew strongly. This growth was fueled partly by a massive asset
bubble in the United States and parts of Europe, and as a result global imbalances between
creditor and indebted nations grew to unsustainable levels. The excesses and imbalances of
The Great Bubble led to the Global Financial Crisis of 20082009 and a new global growth model,
Emerging Emergence, which lasted until 2013. During this period, emerging markets decoupled
and continued to grow without support from advanced economies. Emerging markets drove the
global economy as the advanced economies shrank or stagnated. Global growth was supported
in part by unsustainable fiscal stimulus in China and elsewhere, and by the U.S. Federal Reserves
unprecedented monetary easing. As of 2014, were entering a new phase of Growth with
Divergence. Across advanced economies, growth rates are stabilizing in positive territory, while
emerging markets growth rates are slowing and converging with the advanced economies at
lower levels. Advanced economiesled by the United Stateswill again surpass emerging markets
in absolute contribution to global GDP. But in all economies, success will be tied increasingly to
structural reforms that unlock underlying growth potential. This marks a return to reality in which
country-level fundamentals and policy choices will increasingly trump macro-level trends.

Figure 2
Advanced economies will increase their contribution to world economic growth
GDP growth
$ trillion

Emerging economies

The Great Bubble

Emerging Emergence

Growth with Divergence

Forecast

2.5
2.0
1.5
1.0
0.5

1.7
1.1

0.6

1.6
0.6

1.8

1.8

0.8

0.9

0.7

1.9
0.9

1.0

0.9

1.0

1.0

0.7
0.0

0.5

1.0
0.2

1.9

2.0

2.0

2.0

2.1

0.8

0.9

1.0

1.0

1.0

1.1

1.0

1.0

1.0

1.0

1.0

1.0

1.7
1.5
0.9

0.7

0.5

0.0

0.6

1.2

1.2

0.7

0.7

0.5

0.5

1.4
0.7
0.8

Renewed normal

1.3

Period of higher contribution

by advanced economies

1.0
1.5

Advanced economies

1.1
2003 2004 2005 2006 2007 2008 2009

2010

2011

2012

2013

2014f 2015f 2016f 2017f 2018f 2019f 2020f

Notes: GDP is based on constant dollars at market exchange rates. Numbers may not resolve due to rounding.
Sources: Oxford Economics; A.T.Kearney analysis

In the United States, the economic outlook is stronger than it has been in years, bolstered by
financial sector stability, private sector growth, and rising demand. Despite some lingering
signs of weakness, U.S. economic stability has increased thanks to stronger financial markets
increasing the provision of credit, the wealth effect from greater stability in the housing market,
and improved worker mobility. Private sector activity is also much stronger as companies
Beyond the Crisis: Sustained Global Economic Growth?

increase their level of fixed investment and begin to employ more workers. Private sector
employment surpassed its precrisis peak for the first time in March, reaching 116 million jobs.4
Aggregate demand is rising as a result of both these stronger employment numbers and the
steady repair of household balance sheets as debts accumulated prior to the Global Financial
Crisis have been paid off. The reduced level of federal government fiscal consolidation and
greater fiscal policy stability is also providing a boost to U.S. economic growth. Finally, the
shale energy revolution has played a central role in jump-starting the economic recovery.
Domestic oil production leapt 44 percent between 2008 and 2013.5 This increased U.S. oil
and gas production has positive ramifications throughout the economy by reducing the cost
of domestic energy and thus improving the competitiveness of U.S. firms, and by generating
new opportunities and employment in petrochemical processing industries.

If political leaders are able to undertake

reforms, there is substantial potential
upside in the eurozone growth outlook.
The eurozone, on the other hand, still has a weak growth outlook. According to Economist
Intelligence Unit (EIU) forecasts, the eurozone will only grow 1.0 percent in 2014, after two
years of mild contraction.6 Currency appreciation could aggravate competitiveness problems
and weigh on growth, but recent additional expansionary monetary policies undertaken by the
European Central Bank (ECB) should help to stimulate economic activity. In another positive
sign, eurozone periphery countries have begun to turn the corner due to the structural reforms
they have implemented since the crisis, as well as falling wage levels improving their intraeurozone competitiveness. Increased investor confidence has ensued, as demonstrated by the
fact that some recent public and private debt auctions for periphery economies have been
oversubscribed. However, key pan-European and national reforms still need to be enacted
in order for the bloc to achieve long-term economic resiliency. If political leaders are able to
undertake these reforms, and the credit environment strengthens, then there is substantial
potential upside in the eurozone growth outlook.
In Japan, the Abenomics economic reform agenda is showing signs of traction. After years
of very low inflation or deflation, Japanese inflation is firmly in positive territory and is forecast
to remain above 2 percent throughout the rest of 2014. As a result of this positive inflation and
the governments massive fiscal stimulus, stronger economic growth is expected to continue.
These positive economic trends demonstrate that the first two arrows of Abenomicsfiscal
stimulus and loose monetary policyare working. However, in order for Japan to escape from
the lost decades, the government must also undertake structural reforms to improve economic
efficiency and competitiveness. Prime Minister Shinzo Abe has proposed a set of such reforms
including corporate governance, the promotion of entrepreneurship, and deregulation in National
Strategic Special Zonesbut political resistance to them must still be overcome.

U.S. Department of Labor, Bureau of Labor Statistics, Employment, Hours, and Earnings from the Current Employment Statistics survey,
accessed on 5 August 2014

U.S. Department of Energy, Energy Information Administration, International Energy Statistics

Economist Intelligence Unit, EIU Country Data, accessed on 19 August 2014. All GDP numbers used throughout the rest of this section
are drawn from the same source.

Beyond the Crisis: Sustained Global Economic Growth?

Across emerging markets, growth through 2020 will be lower and more divergent than in the
Emerging Emergence period. In the near term, GDP growth in emerging economies is projected
to drop slightly, with expected growth of about 5.0 percent per year through 2020, compared
to 5.3 percent per year in the period between 2008 and 2013. This slowdown is primarily driven
by China, where the EIU forecasts that growth will moderate from an average of 9 percent annually
in 20082013 to somewhat more than 6 percent through 2020. Even with the slowdown in China,
the highest regional growth rates through 2020 will be in East and South Asia, followed by
Sub-Saharan Africa. Although growth will slow in emerging markets, it is important to note that
their growth outlook still outpaces that of advanced economies, so emerging markets will
continue to increase as a share of the global economy (see figure 3). As more emerging markets
achieve middle-income status, their global economic and political clout will rise accordingly.

Figure 3
Shifting leaders of global economic output

Leading segment

Year

Advanced economies

2000

Share of global GDP

Advanced economies
Emerging economies

35%
65%

Advanced economies

2010

45%
55%

Emerging economies

2020f
53%

47%

Sources: Oxford Economics; A.T.Kearney analysis

China will continue to lead the BRICs in economic growth rates through 2016, but India could
pull ahead of the pack closer to 2020 (see figure 4 on page 7). However, all of the BRIC
economies will increasingly face significant cyclical and structural constraints to growth.
Chinas constraints are primarily structural, due to an economy that is imbalanced both domestically and internationally. A critical medium-term uncertainty is Chinas ability to reduce its
reliance on investment for growth and achieve the soft landing it seeks by rebalancing its
economy toward consumer-driven growth. India faces both cyclical and structural constraints.
Its economy was hit hard by the U.S. Federal Reserves tapering talk in 2013, as growth slowed,
inflation rose, and the currency depreciated. At the same time, Indias economy has structural
inefficiencies due to protectionist policies and poor infrastructure. However, Indias economic
growth could be unleashed by newly elected Prime Minister Narendra Modis proposed reform
agenda. Cyclical forces associated with lower oil prices and geopolitical tensions are damaging
Russias economic prospects in the near term. Russia also has several structural weaknesses,

Beyond the Crisis: Sustained Global Economic Growth?

Figure 4
Economic growth in the BRICs
Real annual GDP growth rate
%

Brazil

China

India

Russia

Forecast

12
10
8
6
4
2
0
2
4
6
8

2008

2009

2010

2011

2012

2013

2014f

2015f

2016f

2017f

2018f

2019f

2020f

Sources: EIU; A.T.Kearney analysis

including an aging population, politicized enforcement of business regulations, and an overreliance on the oil and gas sector. Brazil has similarly been hurt by the cyclical factor of falling
commodity prices. Its decline in economic growthfrom an average of 3.1 percent in 20082013
to just 2.3 percent expected in 20142020has been exacerbated by structural factors, including
poor infrastructure and burdensome business and taxation regulations.
All of these challenges demonstrate the growing extent to which policy choices will determine
the economic trajectories of the BRICs. In fact, structural reforms will be critical in determining
the growth outlook for a broader set of both advanced and emerging economies. Advanced
economies face the challenge of enacting policies that address underlying competitiveness
issues including long-term debt, education, innovation, inequality, aging, and unresolved
postcrisis institutional weaknessparticularly in the eurozone. Many emerging markets
continue to be under near-term stress from U.S. monetary tapering, the structural limits of their
growth models, or both. Emerging-market governments must begin to implement reforms in
labor markets, rules governing FDI, education, infrastructure, and other areas in order to attract
both domestic and foreign investment and drive more balanced consumption-driven growth.

The Next Wave of Growth

In the new Growth with Divergence phase of global economic performance, it will be
important to analyze country-specific economic and policy factors in order to determine which
markets will provide the best growth opportunities for businesses. Recovery in the United
States, given its vast size and importance in the global economy, will be a significant source of
growth in the coming years. In addition, some emerging markets are poised to outperform their
peers and play a greater role in the world economy through 2020. As a result, the next wave of
growth will not only come from the U.S. recovery, but also from seven key emerging markets
the 2020Seven growth markets.
Beyond the Crisis: Sustained Global Economic Growth?

The 2020Seven
In order to determine which emerging markets are likely to drive investment opportunities and
growth between 2014 and 2020, the A.T. Kearney Global Business Policy Council (GBPC) analyzed
the 25 largest emerging marketsas measured by the size of the economy, population, and per
capita GDP at purchasing power parityacross eight key factors (see figure 5). This analysis goes
beyond simply comparing GDP and related economic forecasts, which have a tendency to be
volatile, to include structural factors that position markets to withstand unforeseen economic
shocks and foster longer-term economic growth and stability. Most of the factors are economic,
including the current size of the economy, expected economic performance, economic resilience (arising from the availability of financial resources), and the risk of economic or financial
imbalances. The Council also analyzed two policy factors: how regulations and governance
affect economic activity, and the status of needed structural economic reforms. Finally, the
Council analyzed two additional factors that are important facilitators of economic growth and
business opportunity: the size and quality of the labor force, and the quality of the countrys
infrastructure. From this comprehensive analysis, seven markets emerge as the likely drivers
of growth in the next few years. These are the 2020Seven growth markets.

Figure 5
The 2020Seven growth markets

Scores

Size of
economy

Very low

Low

Economic
Economic
performance resilience

Moderate

Economic
imbalances

High

Very high

Labor
force

Infrastructure

Regulations
and
governance

Reform
status

Growth
market

China
Chile
Malaysia
Peru
Poland
Philippines
Mexico
Colombia
Turkey
India
Vietnam
Indonesia
Bangladesh
Nigeria
Thailand
Brazil
South Africa
Hungary
Russia
Argentina
Algeria
Pakistan
Iran
Egypt
Venezuela

Sources: EIU, IMF, World Bank, World Economic Forum, United Nations; A.T.Kearney analysis

Beyond the Crisis: Sustained Global Economic Growth?

Despite the risks associated with rebalancing, China remains an important growth market. With
1.4 billion people, China is the most populous country in the worldproviding both a large labor
force and a huge consumer market. The World Bank predicts that China will overtake the United
States this year as the largest economy in the world in purchasing power parity (PPP) terms.7
Adding to its consumer market gravitas, Chinas GDP per capita in PPP terms has risen rapidly
in recent years, from $5,040 in 2005 to $11,940 in 2013and the EIU projects that it will rise
to $20,810 in 2020.8 In addition to its sheer size, Chinas large infrastructure investments have
improved logistics in the countrya competitive advantage over many other emerging markets.
Chiles strong institutions and liberal economic policies provide a stable macroeconomic
environment. Its reforms in the 1980s put the country on a more sustainable economic growth
path than many of its peers, and it continues to be very open to foreign investment and trade.
Chile is also known for having the most transparent governance and best rule of law in the region.
As the worlds largest copper producer, Chiles economy benefited from the recent commodity
boom cycle, and the government has used the windfall revenues to create a rainy-day fund that
increases the economys resilience to future commodity price swings. In addition, newly
reelected President Michelle Bachelet has proposed an increase in corporate taxes to fund education reform, which should improve the quality of the labor force and enhance social stability.
Malaysias business-friendly regulatory environment and relatively high per capita income
provide growth opportunities. The economy has recently begun to transition toward being
driven by domestic demand, helped along by government policies such as the strengthening of
the social safety net. In addition, the populations education level continues to improve, with
about 80 percent of the labor force having secondary or tertiary degrees.9 As a key member of
the Association of Southeast Asian Nations (ASEAN) and the TPP negotiations, Malaysia is a very
open economy with trade volumes amounting to 162 percent of GDP in 2012. The country is also
well-placed to withstand any global capital markets turmoil due to its strong regulatory institutions, flexible exchange rate, and high international reserves level.
The economic fortunes of Peru are also on the rise following recent structural reforms and
continued economic liberalization. Economic growth of late has been driven in part by Perus
endowment of minerals and natural gas, but natural resources only account for 11 percent of the
countrys output.10 After decades of populist or authoritarian politics, Perus government has
become part of Latin Americas new, more pragmatic left, combining liberalization with social
spending. As a result of this orthodox policy mix, the EIU predicts that Perus productivity
growth will average 1.1 percent annually between 2014 and 2020.11 Perus membership in the
Pacific Alliance and its involvement in TPP negotiations highlight the countrys outward-looking
policies, as well as its higher growth potential once TPP is enacted.
Polands diversified economy, business-friendly regulations, and educated labor force make
it a strong growth market. Its proximity to Germanythe economic powerhouse of Europe
and its access to the Baltic Sea provide the country with structural geographic advantages.
But policy choices are also an important factor in Polands economic strength. The government
embraced economic liberalization in the early 1990s and has implemented other policies,
such as investments in infrastructure and education, which have fostered sustained economic
7

World Bank, International Comparison Program, The Summary of Results and Findings of the 2011 International Comparison Program,
30 April 2014
Economist Intelligence Unit, EIU Country Data, accessed on 19 August 2014

World Bank, World Development Indicators, accessed on 5 August 2014

Ibid.

10

Economist Intelligence Unit, EIU Country Data, accessed on 19 August 2014

11

Beyond the Crisis: Sustained Global Economic Growth?

growth. In fact, Poland was the only EU member to maintain positive economic growth throughout the Great Recession and eurozone crisis, giving it the highest average annual growth rate in
the EU between 2008 and 2013.12 Poland also ranks highest among its large Central and Eastern
European peers on the World Banks Doing Business indicators.13

Mexicos ambitious structural reform

agenda is unlocking economic growth.
After years of being branded as the sick man of Asia, recent reforms and more stable politics
have enabled the Philippines to grow faster than the ASEAN average in recent years. In fact, the
Philippines economy grew by an impressive 7.2 percent last year and is forecast to expand by
6.3 percent this year.14 President Benigno Aquinos government has implemented a variety of
structural, administrative, institutional, and governance reforms that have unlocked the countrys
growth potential. As a result of these sound economic policies and high economic growth, all
three major credit ratings agencies upgraded the Philippines to investment grade in 2013. One
driver of this growth is the countrys competitive business process outsourcing sector. The
Philippines ranks seventh on A.T. Kearneys 2014 Global Services Location Index, highlighting
this strategic advantage.15 In addition, the Philippines has favorable demographics that will
enable the economy to continue to grow, with the working-age share of the total population
projected to rise from 61 percent in 2010 to 64 percent in 2020.16
The final country that scored high in our growth markets analysis is Mexico. The governments
ambitious structural reform agenda is unlocking growth and providing new opportunities for
investment. Mexicos economy has benefited over the long term from its close proximity to the
United States and its oil wealth, but it had lost some of its dynamism in the first decade of this
century. President Enrique Pea Nietos structural reformsincluding partial liberalization of the
vital oil sectorare reinvigorating Mexicos economy and boosting growth. Partly as a result of
these reforms, the EIU predicts that FDI into Mexico will rise from $27 billion in 2013 to $41 billion
in 2017.17 Another benefit of Mexicos economic performance is the strengthening of the countrys
middle class. Mexicos national statistical institute estimates that the middle class grew by about
4 percent from 2000 to 2010, reaching almost 40 percent of the total population, and it
continues to expand.18
Sub-Saharan Africa growth markets
In addition to the 2020Seven emerging markets, Sub-Saharan Africa will increasingly become
an engine of the global economy. Sub-Saharan Africas economy grew at an average annual rate
of 4.9 percent between 2008 and 2013higher than any other region except Emerging and
Developing Asia.19 The regional economy is not only growing larger, it is also becoming more

12

Economist Intelligence Unit, EIU Country Data, accessed on 19 August 2014

World Bank, Doing Business 2014

13

Economist Intelligence Unit, EIU Country Data, accessed on 19 August 2014

14

See A Wealth of Choices: From Anywhere on Earth to No Location at All at www.atkearney.com

15

United Nations Department of Economic and Social Affairs, World Population Prospects: The 2012 Revision, accessed on 5 August 2014

16

Economist Intelligence Unit, EIU Country Data, accessed on 19 August 2014. Data represents a three-year moving average.

17

Mexico National Institute of Statistics and Geography (INEGI), Clases medias en Mxico, Boletn de investigacin no.. 256/13, 12 June 2013

18

International Monetary Fund, World Economic Outlook, April 2014

19

Beyond the Crisis: Sustained Global Economic Growth? 10

globalized. For instance, exports to the BRICs increased from 9 percent of total Sub-Saharan
African exports in 2000 to 34 percent a decade later.20 In addition, international tourism
has boosted many African economies, growing 5.3 percent in 2013 and reaching a record
of 36 million tourists.21
Sub-Saharan Africa has a variety of strengths that poise it for continued economic growth
and rising prosperity. Although most domestic African markets remain small, regional trade
agreements and other economic unions provide greater scale for investments (see figure 6).
Another growth driver is urbanization. About 37 percent of the Sub-Saharan African population
lives in cities, and the urban population is expected to grow 3.8 percent annually between
2015 and 2020.22 In particular, the Sub-Saharan African cities in A.T. Kearneys 2014 Emerging

Figure 6
Economic unions create larger markets
Regional economic unions in Sub-Saharan Africa
Economic Community
of West African States
Economic and Monetary
Community of Central Africa
Southern African
Customs Union
East African
Community

Senegal
Gambia

Guinea
GuineaBissau
Sierra
Leone
Liberia

Southern African
Development Community

Mali

Niger
Chad

Burkina
Faso

Central African Republic

Burundi

Nigeria
Ghana

Cte dlvoire

Togo

Lagos

Rwanda
Uganda

Cameroon

Benin
Equatorial
Guinea

Kenya

Democratic
Republic of
the Congo

Gabon

Tanzania

Congo
Angola

Mozambique
Zambia

Botswana

Zimbabwe

Malawi
Madagascar

Nambia
Swaziland
South Africa

Lesotho

Notes: Cape Verde, not pictured, is a member of the Economic Community of West African States. Mauritius and Seychelles are members
of the Southern African Development Community.
Sources: World Trade Organization; A.T. Kearney analysis

World Bank, Africas Pulse, Volume 9, April 2014

20

Ibid.

21

United Nations Department of Economic and Social Affairs, World Urbanization Prospects: The 2014 Revision, accessed on 5 August 2014

22

Beyond the Crisis: Sustained Global Economic Growth? 11

Cities Outlook will continue to spur growth in their respective countries and will increasingly
play a role on the global stage. These include Addis Ababa, Nairobi, Johannesburg, Cape Town,
and Lagos.23
Of course, Sub-Saharan Africa is an incredibly diverse region, and not all markets will contribute
as much to global growth as others. An analysis of several measures of economic size and
performance points to 18 dynamic Sub-Saharan Africa markets that have the potential to drive
global growth through 2020 (see figure 7). Economic opportunities in these markets will be
highest in three key areas: retail, natural resources, and manufacturing.
Many retailers consider Sub-Saharan Africa the next big thing thanks to its rapidly urbanizing
population of nearly 900 million people and the proliferation of Internet and mobile phones.
In addition, the regions fast economic growth in recent years has promoted both increased investment and improved living standards. A middle class is now emerging, providing opportunities
for retailers and consumer goods firms. A.T. Kearneys 2014 African Retail Development Index
highlights ten Sub-Saharan African markets that provide particularly strong opportunities for
the retail sector as growing consumer markets.24 The index ranks Sub-Saharan Africa countries
on a scale from 0 to 100, with higher scores meaning there is greater urgency to enter the
country (see figure 8 on page 13).

Figure 7
Sub-Saharan Africa growth markets

Top-five data point

Real GDP
($ billion)

GDP at PPP
($ billion)

GDP (at PPP)

per capita
($)

Population
(million)

Average real
GDP growth,
2008-2013
(%)

Average annual
inflation,
2008-2013
(%)

Angola

60.8

119.2

7,250

22.1

5.7

12.2

Botswana

14.9

31.4

18,190

2.0

3.5

8.3

Cameroon

23.0

48.4

2,520

22.7

3.7

2.9

Cte d'Ivoire

22.1

40.6

2,300

20.8

3.6

2.7

Dem. Rep. of Congo

12.7

27.9

474

69.4

6.4

21.9

Ethiopia

26.5

102.0

1,250

96.5

8.7

20.8

Gabon

12.3

25.2

17,540

1.7

3.9

2.2

Ghana

33.6

81.9

3,630

26.6

8.6

12.3

Kenya

28.4

72.7

1,880

45.6

4.0

11.4

Liberia

1.3

3.1

820

4.4

10.4

9.2

Mozambique

12.1

25.5

1,180

26.5

7.0

7.2

Namibia

10.8

16.1

8,130

2.3

3.9

6.8

Nigeria

319.1

700.2

4,610

179.0

7.0

11.4

Rwanda

5.0

14.9

1,450

12.1

7.6

7.4

South Africa

320.7

526.8

11,680

53.1

2.2

6.3

Sudan

34.8

78.7

3,030

30.6

0.8

22.6

Tanzania

25.8

73.7

1,710

50.8

6.8

10.9

Uganda

17.5

50.3

1,590

38.9

5.9

11.2

Notes: Real GDP is at constant 2005 prices and market exchange rates. PPP is purchasing power parity.
Sources: EIU; A.T.Kearney analysis

23

See Global Cities, Present and Future: 2014 Global Cities Index and Emerging Cities Outlook at www.atkearney.com
See Seizing Africas Retail Opportunities: The 2014 African Retail Development Index at www.atkearney.com

24

Beyond the Crisis: Sustained Global Economic Growth? 12

Figure 8
A.T.Kearneys 2014 African Retail Development Index
ARDI score
70.3
64.2
100

89

Time pressure

60.2

59.5

79

65

71

75

71

Rwanda

55

61

Nigeria

Namibia

55.5

54.3

41

28
0

35

23
Tanzania

17

Gabon

65

53.7
38

72

100

81
100

50

54.2

Market size

94
100

80

56

Country risk

56.9

71

79

71

Market saturation

87

94

22

58.9
19

34
Ghana

South
Africa

66

62

48

19

29

Botswana Mozambique Ethiopia

Notes: Rankings are based on 2012 data. Each of the four factors (time pressure, market saturation, country risk, market size) is worth 25 percent.
Maximum value for each factor is 100.
Sources: Euromoney, Population Reference Bureau, World Bank, EIU; A.T. Kearney analysis

Sub-Saharan Africa also has vast natural resourcesmany of which remain untapped and
provide future investment opportunities (9 on page 14). The region has 63.2 billion barrels of
proven crude oil reserves and 6.3 trillion cubic feet of proven natural gas reserves.25 In addition,
32 percent of the worlds bauxite, the main source of aluminum, is in Sub-Saharan Africa.26 The
region also produced about 84 million tons of iron ore in 2012.27 Particularly mineral-rich markets
include the Democratic Republic of the Congo and Zambia, which are the largest producers of
copper in Sub-Saharan Africa, each with about 20 million tons of proven copper reserves.28

Many of Sub-Saharan Africas vast

natural resources remain untapped.
Finally, while manufacturing has historically been underdeveloped in Sub-Saharan Africa, it is
starting to expand in some markets. Sub-Saharan Africa has lower average unit wage costs than
many other emerging market regions, which could lead some manufacturers to shift production
thereparticularly as wages in China, which has been the manufacturer to the world in recent
decades, become less competitive. There are still hurdles to manufacturing in Africaincluding
poor infrastructure and security issues in some areasbut certain markets are poised for
growth. These include Tanzania, Uganda, Nigeria, and Angola, where manufacturing has significantly grown as a share of GDP since 2005 and could continue to do so.29
25

Organization of the Petroleum Exporting Countries, Annual Statistical Bulletin 2013

26
27

U.S. Department of the Interior, U.S. Geological Survey, Mineral Commodity Summaries 2013

Natural Environment Research Council, British Geological Survey, World Mineral Statistics Data, accessed on 5 August 2014

28

U.S. Department of the Interior, U.S. Geological Survey, Mineral Commodity Summaries 2013

29

World Bank, World Development Indicators, accessed on 5 August 2014

Beyond the Crisis: Sustained Global Economic Growth? 13

Figure 9
Resource wealth in Sub-Saharan Africa

Oil
Coal
Natural gas
Aluminum
Copper
Iron ore

Mauritania
Sudan
Nigeria
Guinea
Sierra
Leone
Liberia

South
Sudan

Cameroon

Lagos

Cte dlvoire

Kenya

Democratic
Republic of
the Congo

Equatorial
Guinea

Tanzania
Zambia
Angola

Mozambique

Zimbabwe
Namibia

Botswana

South
Africa

Swaziland

Sources: African Development Bank, U.S. Geological Survey, U.S. Energy Information Administration; A.T.Kearney analysis

Despite all of these advantages and opportunities, Sub-Saharan Africa is still grappling with
development challenges that could put this promising economic outlook in jeopardy. First among
these is poverty. Living standards have improved in recent yearsfor instance, regional GDP per
capita grew 28 percent from 1990 to 2010, to $3,057 on a PPP basisbut 70 percent of the regions
population still lives on less than $2 per day.30 The second challenge is poor infrastructure.
According to the World Bank, the region needs $60 billion in annual new infrastructure investments in order to provide adequate electricity, transportation, and other services.31 Finally, weak
governance continues to pose a challenge in many African countries. Corruption is prevalent in
many markets, and the rule of law is often weak, creating an uncertain and often costly business
environment.32 For Sub-Saharan African markets to live up to their promise, governments will
need to address these three critical issues.
30

World Bank, World Development Indicators, accessed on 5 August 2014

31

Vivien Foster and Cecilia Briceo-Garmendia (eds.), Africas Infrastructure: A Time for Transformation, World Bank, 2010

32

World Bank, Worldwide Governance Indicators, accessed on 5 August 2014

Beyond the Crisis: Sustained Global Economic Growth? 14

Wildcards
Despite the positive force of all of these growth-driving economies, the projected global
economic growth of 3 to 4 percent annually through 2020 is subject to downside disruption
from a remarkably wide range of contingencies. In particular, seven significant risks could
produce negative economic shocks and derail the nascent economic recovery.
The first of these is the U.S. Federal Reserves tapering of its bondbuying program, including its timing and communication, which
could expose risks in the U.S. financial system and macroeconomy.
In September 2012, the Fed announced its third round of quantitative
easing since the Global Financial Crisis, providing continued monetary
support to the weak U.S. economy. However, with the economic
recovery gaining steam, the Fed began tapering its bond-buying program in January 2014.
At its current pace of tapering, the Fed would end the quantitative easing program in late 2014.
Although Fed Chair Janet Yellen has conveyed her intention to maintain historically low interest
rates after bond buying ends, markets are understandably nervous about the withdrawal of this
historic monetary stimulus. As a recent Deutsche Bank report stated, Theres still too much
leverage for us to believe that accidents wont happen with the removal of stimulus[which]
may force the Fed into a much slower tapering path.33
The second key uncertainty is related to the first: namely, the extent
and degree of emerging market vulnerability to rapid capital
outflowswhether driven by Fed tapering or some other global financial
development. With rising rates of return in advanced economies,
capital is leaving many emerging market debt and equity markets and
causing volatility. Some emerging market currencies are likely to come
under increased pressure if capital outflows continue. Raising interest rates would help to prop
up currencies, but could also dampen domestic economic activity and potentially widen fiscal
deficits. Given this very real possibility of no-win policy choice scenarios, each emerging market
must be carefully and continually monitored. As with past emerging market financial crises,
if one or more markets come under intense pressure, the risks of contagion will be high.
Economic instability in the eurozone is another risk to the global
economic outlook. Although the crisis there appears to have subsided,
key vulnerabilities remain. The eurozone economy contracted by
about 0.3 percent in 2013 and is forecast to grow only 1.0 percent this
year, as it is being squeezed internally by a collapse in credit creation
and a lack of domestic demand and externally by the euros strength.34
The ECB has pledged to keep interest rates at or below current levels (0.25 percent) to support
the eurozone economy. However, competitiveness issues could hold back growth; for instance,
France has low labor market flexibility due to strict rules on hiring and firing and a very high
tax rate. Unemployment, especially for youth, is another critical indicator, with Greece and
Spain recording unemployment of more than 25 percent.35 These vulnerabilities could spark
a new wave of instability in the eurozone, which would likely spill over to damage global
growth prospects.

33

Deutsche Bank Markets Research, Credit Outlook 2014: The Bubble-Taper Tightrope, 10 December 2013

34

Economist Intelligence Unit, EIU Country Data, accessed on 19 August 2014

35

International Monetary Fund, World Economic Outlook, April 2014

Beyond the Crisis: Sustained Global Economic Growth? 15

A related risk is that of disinflationor even deflationin developed

markets. Fundamentals are weak in Europe, and there is concern that
an external shock could spark deflation. Even without such a shock, the
IMF forecasts that eurozone inflation will fall from 1.4 percent in 2013
to only 0.9 percent in 2014far below the ECBs target of below, but
close to, 2 percent.36 While the United States appears to have stronger
fundamentals, the beginning of tapering could undermine the upward trend in inflation there.
The inflation outlook is also more positive in Japan as a result of recent stimulus measures, but
concerns remain that disinflation could return if the Abenomics economic reform agenda stalls.
Disinflation or deflation would undercut aggregate demand and make it more difficult for public
and private borrowers to pay down their outstanding debts. In addition, it would likely result in
borrowers and businesses delaying purchases and investments, reducing aggregate demand
and thus economic growth.
A key wildcard is whether the Chinese transition from an investmentto a consumption-driven economy will be successful. The GBPC believes
that the risk of a Chinese hard landing is small, but is also convinced
that it would have major consequences domestically and in the rest of
the world if it were to occur. Fixed capital investment has grown almost
100 percent in China since 2007, far exceeding that of consumption,
government spending, or net exports.37 The growth in non-financial private sector debt as a share
of GDP has set off early-warning indicators at the Bank for International Settlements, which notes
in its latest annual report that Chinas credit-to-GDP ratio is 23.6 percentage points above its
long-term trend; it also notes that its debt service ratio is 9.4above the critical threshold
of 6.0.38 Non-performing loans (NPLs) have risen to their highest levels since the 2008 crisis.39
As a result, banks have begun to tighten credit and Chinese authorities have also begun
cracking down on loan standards and shadow banking. Although necessary to put the economy
on a more sustainable growth path, this worsening credit environment is constraining nearterm growth. The longer China delays reforms to balance its economy, the greater the risks for
Beijing and the global economy of a hard landing. Markets that would be particularly hard-hit
by a dramatic slowdown in the Chinese economy include South Korea and Taiwan, as well
as the global markets for oil and base metals.
Another wildcard is the supply of key natural resources. If a negative
shock were to occur, natural resource scarcity could severely weaken
the economic outlook to 2020. Even without such shocks, the IMF
predicts that the global commodity price index will remain high,
averaging 166.5 in the next six years, compared to just 97.3 in the first
decade of the century.40 There are a variety of developments that
could push up these prices during the forecast period. For instance, although the shale
revolution has vastly increased known global energy reserves, geopolitical events (such as
recent Islamic State activity in Iraq and ongoing instability in Libya) could disrupt supplies and
make prices volatile. And the United Nations estimates that natural disasters, which are
becoming more frequent as a result of climate change, have cost the global economy more
36

International Monetary Fund, World Economic Outlook, April 2014

37

World Bank, World Development Indicators, accessed on 5 August 2014

38

Bank for International Settlements, 84th Annual Report: 1 April 201331 March 2014, 29 June 2014: 7475

39

Bloomberg News, China Banks Bad Loans Reach Highest Since Financial Crisis, 14 February 2014

40

International Monetary Fund, World Economic Outlook, April 2014

Beyond the Crisis: Sustained Global Economic Growth? 16

than $2 trillion in the past two decades.41 With current global dietary and population trends,
the world will need to produce 60 percent more food in 2050 than it does today and 10 million
square kilometers (nearly 3.9 million square miles) will need to be cleared for agricultural
production.42 As such, food scarcity is another concern, as past episodes of food price
inflation have led to social unrest, including the Arab Spring.
Finally, in this fragile global environment, a number of potential
geopolitical flashpoints represent particularly significant risks to the
global economic outlook. There are currently three main pockets of
geopolitical risks: East Asia, the Middle East, and Sub-Saharan Africa.
In East Asia, the risks include North Korean instability and provocations,
tensions between China and Japan, and territorial disputes between
China and a variety of Southeast Asian countries in the South China Sea. In the Middle East, the
Syrian civil war is a continuing source of instability and geopolitical risk, as is Iran and its nuclear
program (despite progress in the P5+1 talks). In addition, recent events have demonstrated that
Iraq remains politically unstable. The geopolitical flashpoints in Sub-Saharan Africa are driven
in large part by Al-Shabaab in the Horn of Africa, Boko Haram in Nigeria, and Islamist militant
groups in the Sahel. In addition to these regional concentrations of risks, instability and
geopolitical tension also exist in Afghanistan and Pakistan, as well as between Russia and
Ukraine and its Western allies. In a transitional period of contested regional leadership, these
flashpoints represent major risks to global political, social, and economic stability.

Conclusion: Renewed Normal Creates

Business Opportunities
With the global economy finally transitioning from the Great Recession to a period of more
stable growth, businesses will likely find growth opportunities across both developed and
emerging markets. However, identifying specific growth opportunities will be more difficult
than in the previous period of Emerging Emergence. The Growth with Divergence phase
through 2020 will be characterized by greater variation in economic performance among both
advanced and emerging economies. As macro-level fiscal and monetary supports recede,
growth will be differentiated by the substance of national-level structural reforms and the
quality of policy decisions. As a result, it will be important for corporate decision makers to
closely monitor markets for policy changes that create new challenges or opportunities, while
also being aware of the global wildcards that could derail broader economic growth.

41

International Federation of Red Cross and Red Crescent Societies and United Nations Development Programme, Effective Law and
Regulation for Disaster Risk Reduction: A Multi-Country Report, 2014

42

Nikos Alexandratos and Jelle Bruinsma, World Agriculture Towards 2030/2050: The 2012 Revision, ESA Working Paper 12-03, Food and
Agriculture Organization of the United Nations, June 2012; David Tilman, Christian Balzer, Jason Hill, and Belinda L. Befort, Global Food
Demand and the Sustainable Intensification of Agriculture, Proceedings of the National Academy of Sciences of the United States of
America 108, no. 50 (2011).
Beyond the Crisis: Sustained Global Economic Growth? 17

Authors
Paul Laudicina, chairman emeritus of
A.T. Kearney and chairman of the Global
Business Policy Council, Washington, D.C.
paul.laudicina@atkearney.com

Erik Peterson, partner and managing

director of the Global Business Policy
Council, Washington, D.C.
erik.peterson@atkearney.com

Rudolph Lohmeyer, director of the

Global Business Policy Council,
Washington, D.C.
rudolph.lohmeyer@atkearney.com

The authors would like to thank Courtney Rickert McCaffrey for her valuable contributions to this report.

About the Global Business Policy Council

A.T. Kearneys Global Business Policy Council, established in 1992, is dedicated to helping business and government
leaders worldwide anticipate and plan for the future. Through strategic advisory services, regular publications, and
world-class global meetings, the Council is committed to engaging in thoughtful discussion and analysis of the
trends that shape business and government around the globe.

Beyond the Crisis: Sustained Global Economic Growth? 18

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Asia Pacific

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Sydney
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Europe

Amsterdam
Berlin
Brussels
Bucharest
Budapest
Copenhagen
Dsseldorf
Frankfurt
Helsinki

Istanbul
Kiev
Lisbon
Ljubljana
London
Madrid
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Munich

Oslo
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Prague
Rome
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and Africa

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