Global economy watch - March 2013

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A 15% depreciation of the Japanese Yen since November has revived fears of “currency wars” prompting the G20 to diffuse the situation. Meanwhile, the sterling lost around 6% of its value this year but this had more to do with the gradual unwinding of the safe haven effect and slower domestic growth than new policy initiatives.

The main threat these currency movements pose to UK businesses, is higher inflation. Fortunately, the cost base of most UK companies is under control as earnings growth continues to be subdued and substantial currency risk is hedged away. CEOs should, instead, focus on the export opportunities a cheaper sterling offers.

On a global level, business challenges remain. Our interview with PwC International’s Chairman, Dennis Nally, shows that CEOs around the world are less confident about revenue growth in the next 12 months than a year ago.

In response to this, businesses are reviewing and changing their operating model, making their products more customer-centric whilst carefully targeting their growth opportunities.

This month we have focused on the African continent, which shows that eight more economies are expected to join the “7% club” presenting businesses with immediate growth opportunities, particularly in the infrastructure sector.

But Africa is still a hard place to do business. Our heat map indicates that to unlock the growth potential and really start to compete with other developing and emerging economies, African authorities need to make it easier for businesses to operate there.

At a glance

Key messages:

  1. UK businesses should capitalise on the export opportunities that a weaker pound offers.
  2. CEOs remain cautious about global prospects, focusing on efficiency improvements and getting closer to their customers.
  3. Nine African economies are joining the “7 % growth club”, presenting business with opportunities particularly in the infrastructure sector.
  • A 15% depreciation  of the Japanese Yen since November has revived fears of “currency wars”, prompting the G20 to try to diffuse the situation. Meanwhile, sterling has lost around 6% of its value this year (see Figure 1) but this had more to do with a gradual unwinding of the safe haven effect (symbolised by the loss of the UK’s AAA credit rating) and slower domestic growth than new policy initiatives.
  • A weaker pound could mean higher import costs for UK businesses. Fortunately, however, the domestic cost bases of most UK companies are under control as earnings growth continues to be subdued and substantial currency risk is hedged away. UK-based businesses should, instead, focus on the export opportunities that a cheaper pound offers.
  • On a global level, business challenges remain. Our interview with PwC International’s Chairman, Dennis Nally, shows that CEOs around the world are less confident about revenue growth in the next 12 months than they were a year ago.
  • To deal with slower growth, CEOs are allocating additional resources to making their operations more efficient, by actively monitoring their liquidity, managing their supply chains better and spending more time understanding and responding to their customers’ needs.
  • This month we have also looked at the African continent, which shows that nine more economies are expected to join the “7% growth club”. This presents businesses with immediate growth opportunities, particularly in the infrastructure sector.
  • But Africa is still a hard place to do business. Our heat map (see Figure 2) indicates that to unlock Africa’s growth potential and really start to compete with the BRICs, African authorities need to make it easier for businesses to operate.

Charts of the month

Figure 2 – African countries have more favourable fundamentals than some of the larger emerging economies

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