What to expect in key international markets
What can we expect in key international markets over the coming months? And where should UK companies be focusing their export activity?
The fact that the US has the highest per capita income levels1 in the world demonstrates the size of its economy and the strength of domestic demand. This creates opportunities for exporters across virtually all sectors. Canada is rich in natural resources and has strong energy and mining sectors. It is also a major centre of scientific discovery with a well-developed clinical research infrastructure and a major biotechnology sector.
North America is perhaps the world’s most competitive market and aspiring exporters are strongly advised to seek specialist advice before committing the resources necessary to enter the market successfully. The disparate nature of the economy means that the US in particular needs to be approached as a number of small, semi-autonomous markets.
Although the US has recovered relatively well from the global financial crisis, growth continues to be constrained by economic difficulties in Europe and the US Government’s attempts to stabilise its debt to GDP ratio2. Canada’s economic recovery is further advanced, with 2011 growth of 1.5%2. The IMF predicts a similar rate of economic growth for both countries in 2012 and 2013 as recovery gathers pace in the US.
In Latin America, growth has generally remained good throughout the last decade, buoyed by positive economic policies and strong demand for commodities. Although restricted demand from China in 2012/13 is expected to limit growth in commodity-rich countries such as Brazil and Argentina, a gradually improving US economy should benefit countries such as Mexico and Venezuela, and the IMF views prospects for the region positively.
There are estimated to now be over 300 million ‘middle class’ consumers in Latin America – more than India and China combined – and this brings with it an increasing demand for imports. Countries such as Brazil, Mexico and Argentina have a broad and sophisticated industrial and consumer base, creating opportunities across all areas for UK exporters. Pharmaceuticals, machinery and beverages are among the most popular UK exports, while energy and engineering are potential growth areas.
Asia is the most populous and the fastest growing economic region in the world1. While the largest economies are China, Japan, India, South Korea and Indonesia, the wealthiest territories in per capita terms are Hong Kong, Macau, Japan, South Korea, Singapore, Brunei and Taiwan1. The most rapid economic growth has been seen in China, India and the ‘ASEAN-5’ of Indonesia, Malaysia, Thailand, Vietnam and the Philippines2.
Although growth has fallen back a little as external demand, especially from Europe, has weakened, robust domestic demand and a relatively unscathed Asian banking sector has helped maintain relatively strong growth. The IMF expects overall growth in Asia to slow to 6% in 2012 and pick up to 6.5% in 20132.
Whilst the region has its legal, regulatory and cultural obstacles to overcome, the continued economic growth and a burgeoning middle class make this a place with almost limitless potential for exporters willing to invest the time and effort necessary.
The growth of the middle class has led to the inevitable increase in demand for consumer goods, especially those from international luxury brands. Other attractive market sectors across the region include Education – Asian countries often commit a high proportion of government spending to this area. Renewable energy is also a growth area as countries like Indonesia, the Philippines and Thailand seek to broaden their energy mix by investing in methods such as biomass and geothermal. The region’s continued growth makes infrastructure projects another key opportunity. Finally, with Asian countries ranked highly in the Global Information Technology Report 20123 the region is a major ICT market, particularly Singapore, Thailand, Malaysia and Taiwan.
Although Europe’s economy is now similar in size to that of Asia, its much smaller population means that Europeans are, on average, still the wealthiest1.
As you would expect with an economy made up of 48 different states, wealth varies greatly between countries, the split being largely east-west. Europe’s five wealthiest countries – Germany, France, UK, Italy and Russia – make up half of the world’s top ten economies1. In recent years growth across the region has been mixed, with Central and Eastern European economies and Germany enjoying modest rises, while economies such as Spain, Italy and Greece have been more adversely affected by the Europe-wide debt crisis and measures to reduce government budget deficits2. Fiscal consolidation, euro-area structural reforms and the intervention of the European Central Bank (ECB) have encouraged the IMF to forecast a gradual recovery in the European economy in 2013. Growth prospects remain brightest in Eastern Europe2.
In terms of sectors, although per capita income is lower in Central and Eastern Europe, economies such as Poland, Czech Republic and Romania are major beneficiaries of EU structural funding and are investing heavily in roads, airports, energy, and water and waste management. The affluent and sophisticated economies of Western Europe import a wide range of products from around the world, offering opportunities across all markets.
Middle East and North Africa
The economy of the Middle East is extremely diverse but is nevertheless dominated by the production and exporting of oil, and its impact on both wealth and the movement of labour. Oil exporting states have benefited from high growth over a sustained period and have ambitious investment programmes aimed at diversifying their economies and meeting the aspirations of their growing populations. This is creating more opportunities than ever in infrastructure development of all kinds attracting UK engineering and consultancy services in particular – as states attempt to make the most of this period of high oil prices to secure their long-term prosperity.
This must be balanced with the fact that oil-importing countries have generally experienced slower growth and that social unrest across the region has adversely affected tourism and capital flows2. The so-called Arab Spring has inevitably had a significant effect on the economies of Egypt, Tunisia, Libya and more recently Syria.
In the Middle East and Africa as a whole the outlook remains positive. The IMF recently upgraded their 2012 GDP forecast to 5.5%2, as negative developments in Iran are offset by a pick-up in oil production in Iraq and Saudi Arabia and a post-revolution bounce back in Libya2.
Sub-Saharan Africa Sub-Saharan Africa is a resource-rich but relatively poor region, largely rural, with 50% of the population living without electricity1. Recent economic growth has been strong, however, buoyed by light manufacturing and sales of commodities. Although South African growth was badly affected by the global economic slowdown, the region as a whole has performed well, recording growth of 5% in 2011.
The economy has also benefited from a recent diversification in exports towards fast growing emerging markets2. Doing business in many parts of Africa can be a challenge, but opportunities exist in areas such as infrastructure, energy, water and sanitation, agriculture and education. Despite recent economic setbacks, South Africa is nevertheless a sophisticated and vibrant economy. UK Trade & Investment (UKTI) reports opportunities in agri-technology, advanced engineering and design, construction, rail, chemicals, mining, education, healthcare and financial services.
1. CIA World Factbook
2. IMF: World Economic Outlook 2012
3. World Economic Forum: Global Information Technology Report 2012
This article is taken from RBS’s Route to Growth publication.