The IMF now expects the world economy to grow by 3.5% in real terms this year and by 4.1% next (compared with previous forecasts of 3.3% and 4.0%). But as the world continues to be roughly divided into struggling industrialised nations and dynamic emerging markets, the former are expected to grow by 1.4% and 2.0% only, with an 0.3% contraction forecast for the Euro area this year – mainly as a result of recessions in Italy (-1.9%), Spain (-1.8%) and Greece (-4.7%).

This ties in perfectly with the still weak job market outlook with very little progress happening in most industrialised nations, perhaps with the exception of Germany (although even the German job market continues to suffer from its own underlying problems). And again, I’d like to briefly point to youth unemployment rates above 50% which we are now seeing in Spain and Greece.

Meanwhile, growth for the emerging and developing economies is expected to come in at 5.7% and 6.0% this year and next, with Chinese growth rates again ready to top all other key markets at 8.2% and 8.8%. India is also thought to post high rates at 6.9% and 7.3%.

(As always, you can click on the thumbnail to see a larger version of the chart.)

Euro area troubles

So much for the very short summary of the latest set of IMF forecasts, but amid the slightly more positive outlook for the world economy it’s worth having a glance at the substantial problems that continue to exist in the Euro area.

Essentially, what we are currently facing in the Euro area is a structural and confidence crisis rather than something that could be easily fixed by throwing even more billions of Euros at the problems. This is because the Euro itself is an unstable creation; fiscal stability has been neglected for too long; and huge amounts of public debt have built up (along with considerable private household debt in a number of member countries).

As a result, the Euro area is now paying the bill for years of negligence, as well as for reacting too late and too slowly. What’s at the heart of the crisis now are very fundamental doubts about the will to create a sustainable economic environment, as well as the sheer ability of some countries to achieve that – not least in Greece. Without this trust, however, financing options will increasingly dry out amid a sharply rising risk of even more chaos.

Speaking of Greece, since the crisis escalated in the country a couple of years ago, it has turned out that Hellas suffers from a profound lack of administrative structures that actually work, which makes it very hard to implement decisions, fix public finances and keep the country going. As unemployment has continued to soar and private sector salaries have come down by around 20% last year amid a scenario of public spending cuts and tax hikes, getting things right without bailout support from Europe, the IMF as well as private creditors has proven completely impossible. At this point in time, the government couldn’t keep Greece running even without the existence of any public debt at all. This is also why last weekend’s general elections were so important (although the results were worrying).  

Not only in Greece, fiscal consolidation and structural reform schemes are more easily passed than completed.

Those who assume that more debt restructuring is to follow in Greece are likely to be right – for example in 2014 when current support schemes will run out, or even earlier in the wake of last week’s general elections whose results contain a significant element of unpredictability, as public annoyance over the strict austerity schemes keeps growing.

For Greece (and perhaps Ireland and Portugal) to leave the Euro area clearly would be a painful thing to do, even when doing this in a fairly controlled manner; however, such a move could ultimately boost the countries’ global competitiveness and help exports via a weaker currency, thus creating a foundation for slow but sustainable long-term recovery.

However you look at it, it seems the Euro area has arrived at a point where it either needs to solve its structural problems and regain both control and credibility; or let some members go. It is obvious that things cannot continue as they are today, but restructuring is difficult, given the social realities it keeps crashing into.

Meanwhile, outside the Euro area, China is increasingly worth a closer look as growth rates are coming down, the very essential property sector has shown signs of deflation and international investors are becoming more careful. With China being a very important export market for technology providers such as Germany and Japan, as well as a large number of commodity-exporting emerging markets, any bigger crisis in China will have visible consequences for the world economy. A more detailed look at all this will follow soon.

Have a good weekend,

Boris

Yes, 23.6% in Spain!

And these are just the official Eurostat numbers - we know that not everyone who’d like to have a job actually registers as unemployed (discouragement), or is officially classified as jobless. Far from it.

Unfriendly unemployment chart from my paper this morning

Also very remarkably, youth unemployment (unemployment among people aged below 25) now stands at double the overall rate at 21.6% in the Euro area, and what’s missing in my view is a broader public debate on what such high youth unemployment is going to do to our societies in the long term, with all the frustration and resignation it is capable of creating and perpetuating. After all, this is crisis year number five. Believe it or not, Germany, Austria and the Netherlands are now the only EU countries with single digit youth unemployment – really looks like we’re facing a very big problem here.

Meanwhile, youth unemployment is now over 50% in Spain and Greece. Needless to say, government spending cuts have aggravated the situation and it is worth asking whether the cuts as they are happening now will actually take the countries to where they are hoping to go in the long run. Will travel to Greece next week and will put some impressions here.

Have a good week,

Boris

Having returned from our research trip to Sub-Saharan Africa, we’ve found ourselves sitting on a fairly big pile of pictures of hypermarkets, supermarkets, convenience stores, convenience foods and private label ranges etc from the modern end of grocery retailing; as well as pictures of tuck and spaza shops as well as street vendors at the informal end.

A big thank you to Craig Ballantyne of Capacity Holdings for taking us across some modern formats targeting lower-income groups, such as Shoprite’s Usave and Walmart/Massmart’s Cambridge Foods banner; and an equally big thank you to Warwick Corder of Advantage Group for a truly intriguing day out among traders in Soweto – an insightful and stark contrast to the glitzy shopping centres of Johannesburg’s Sandton area.

Some pictures below, while a more detailed report of the trip will be published next week on Planet Retail.

Have a good weekend! And as always, you can click on the images to see larger versions of them.

Poster fuelled competition heating up at this Newtown location as a new Cambridge Foods store by Massmart has opened right opposite a Usave store by market leader Shoprite

Imitation of the Table Mountain or so inside the Usave outlet

Small package sizes are in order for brands to be affordable to anyone

Shoprite offers its Ritebrand economy private label also at its bottom income Usave banner

Multi kilo packs of food staples are popular with lower income consumers as well as informal traders who tend to break them down and sell them on in smaller pack sizes

Independent wholesale outlet supplying independents within a relatively small catchment area within Soweto, Johannesburg

Even though this may look like a bank branch at first glance it is actually a bakery with catering service

Fast food outlet in a ship container swept away by the recession

Inside the little sister of the owner is waiting for clients and more bread

The neighbouring bakers proudly present a super fluffy warm bread

Great service from a local butcher allowing customers to buy their breakfast sausages and marinate them in Portuguese style piri piri before putting them on the self service grill outside

Shop keeper Kevin favours Metro of Metcash as his wholesaler as a result of what he sees as superior service levels

Shy guy running a tidy telecoms center in a ship container and selling some sweets for whining waiting kids as well as omnipresent toilet paper single packs

Another telecoms services provider but with a stronger focus on the internet as opposed to telephones

Young street vendor from Mozambique with monthly sales of around USD240

Smart entrepreneur preparing maize meal porridge for her outdoor restaurant in what is actually very hard work

Young hairdresser ready to do it for the equivalent of USD1.20

Wen stated at the opening ceremony of the national Parliament that the official growth target is now 7.5%, alongside 4% consumer price inflation. In the years from 2011 to 2015, economic growth is still due to average 7%, in line with earlier announcements, compared with values oscillating around the 10% mark in the past few years.

None of this comes as a very big surprise. The global economic problems are well known, and taking steam out of the economy and bringing down high inflation rates (especially the country’s double digit food price inflation) has been a core target for the government for quite a while – not least as a result of its implications for social stability.

The Walmart answer to inflation at a Beijing store

Looking at the bigger picture of economic change, the Chinese government will continue to support domestic demand in order to reduce the country’s dependence on the volatile export sector, which has proven to be fairly vulnerable to global economic shocks. In addition, export-oriented manufacturing will continue to climb up the value ladder as the sharp rise in domestic wages has meant China has been losing competitiveness in the low-price segment, resulting in a need to look into performance and design innovation of consumer electronics and other products.

As always, you can click on the chart to see a larger version of it.

Have a good day!

Less beautiful than the city is Portugal’s economic outlook – and here are three slides that will be cast against the wall. Thanks to lots of content input from my team mate Tatjana Wolff (who will also attend the conference) plus brilliant design ideas from our Senior Editor Jo Jones. (As always, you can click on the thumbnails to see larger versions of the images).

This one shows Portugal’s double dip recession. Another chart will show how unlikely Portugal is to return to pre-crisis output levels until 2015. That’s too long a crisis to be waited out, structural change is unavoidable in retail and elsewhere.

Both in absolute terms and by international comparison, Portugal is very dependent on private consumption. Therefore, it is bad news that December 2011 saw the lowest level of consumer confidence ever recorded in the country. Getting this right is the key economic challenge for the government.

In line with most industrialised nations, Portugal’s birth rates have dropped sharply, namely by two-thirds in the past half century. This has implications on social re-distribution (and associated with it, disposable income levels), consumption quantities in the young-people segment, as well as household sizes and locations. The latter should support a shift of retail investment back to town centres and residential areas, at the expense of out-of-town hypermarkets.

Have a good weekend,

Boris

A couple of weeks ago when working on a short article on retailing in the Euro area, we were sitting in front of that very simple data set of real GDP growth rates from 2005 - 2015, looking at how the troubled economies were doing of the countries that have recently shot to fame as the PIIGS states (Portugal, Italy, Ireland, Greece and Spain).

A look at the figures made it clear that Spain will not return to pre-crisis output levels until 2013, although this still looks good when looking at Portugal, which may not reach that point until 2015. Meanwhile, Italy and Ireland might follow in 2016, while Greece now looks unlikely to return to pre-crisis output before 2018, which means the country is in the process of losing an entire decade of economic development - from today’s forecast perspective.

Of course, there were different options to put these data into a chart. Here are some that we considered, along with short comments on their pros and cons. As always, you can click on the thumbnail to see larger versions of the charts.

The classic – a simple line chart showing annual growth rates for each country; the coloured lines make it easy to follow developments in each single market. As all lines are back in positive territory from 2013, the crisis sees pretty much sorted out, doesn‘t it? But look at the next chart…

…the classic turned index – with the crisis starting in 2007, all annual data points are measured against that base year. This is the chart that reveals how bad the crisis really is, as three out of five countries fail to even return to pre-crisis level by 2015. Looks much more nasty than the first chart.

Another classic used differently – the bar charts (normally used for market totals than growth rates) make it difficult to follow an individual country, but show very clearly where the PIIGS are heading as a group.

Candy sticks – very difficult to eat, err, read, but shows that only before 2008 and after 2012 all PIIGS economies were in positive territory. However, the hole in between is five years wide. And it clearly highlights those who kept behaving like drops in bitter times.

Santa‘s sleigh runway (with potholes big and small…) – nice to look at, and that‘s about it.

Academic, precise, sober – this chart brutally exposes the fact that 99% of a line chart are fiction. Because between annual data points there is an infinite number of potential connection lines. It shows what is known and nothing else.

Ho-ho-ho-ho-ho – the ultimate version sums it all up - the Christmas tree ball chart J!

All the best for today and all of 2012!

(As always, you can click on the charts to see larger versions.)

Germany, in the meantime, is the big exception in the European labour market, with the unemployment rate coming down to 5.5% from an already-low 6.8% in the year to October. But here, too, not all is rosy as a large proportion of jobs continue to be seated in the low-income segment and real salaries have been falling for at least five years. The widening income gap also shows in German retail sales, which have failed to take off in real terms in recent years, even after the economy began its breathtaking post-recessionary bounce-back in 2010.

The situation is serious, and it doesn’t look likely to improve materially in the near future.

This could grow to 200 million by early 2015. It’s worth mentioning here that growth rates are usually more accurate than population totals, and Brazil compares very favourably here with other key emerging markets at 12.1% population growth in the decade to 2011. China, for example, only recorded 5.6% growth during the same period while Russia has even seen its population shrink by 2.7%. This population increase is clearly a big contributor to economic growth in Brazil alongside the big subject area of urbanisation, growing productivity and rising income levels. (As always, you can click on the charts to see larger versions).

Brazil’s fast-growing population is unsurprisingly very young, with 25.9% of people aged under 15. This compares with 20.2% in China and just over 13% in both Japan and Germany. The large number of young people has two very broad implications. The first is that young people usually have very little income and depend on their families, which is a burden on spending power now. The other is that most of these people will start working some day – and with poverty decreasing quickly and education improving massively, this holds enormous long-term potential for suppliers of food, health & beauty ranges, clothing, hopefully books and definitely footballs.

Then, around 90% of Brazil’s population is concentrated in the federal states along the eastern Atlantic coast and mainly in the south-east region, which is home to São Paulo (19.9 million in habitants in the greater urban area) and Rio de Janeiro (11.9 million). Apparently, over 85% of Brazil’s population now live in urban space but please remember that city population estimates tend to be even more inaccurate than total country data.

Anyway, the chart above suggests that Brazil features the highest rate of urbanisation among the world’s key emerging markets, thanks to a massive rural exodus that kicked in around the middle of the 20^th century.

The partly uncontrolled urbanisation brought with it the rise of very poor residential areas (called favelas), especially in the 1970s, with significant crime problems. However, criminality has been tackled with some success in recent years to the delight of the local population and it continues to be fought (in increasingly co-operative ways) in the run-up to Brazil’s couple of high-profile events in 2014 and 2016: the FIFA World Cup and the Olympic Games in Rio de Janeiro, respectively.

And that’s it for today. To be continued shortly and feel free to add your own impressions to this!

Boris