The decade from 2010 to 2020 will see the US economy remain in pole position as the world's largest economy, says Sasfin Securities deputy chairperson David Shapiro.

He says these ten years will be lead by advancements in information technology (IT), oil and gas, and three-dimensional (3D) printing – all markets which should be dominated by the US.

Shapiro describes the period from 1990 to 2000 as probably the “best period our generation would see”, as the collapse of communism opened up major new markets, followed by an explosion in IT and technology –unfortunately followed by the famous, and rather inevitable, tech-bubble on the stock market.

“That was a proper bubble. There is no bubble now. We are far from that.”

The decade from 2000 to 2010 saw a commodity supercycle, driven largely by the emergence of China.

While China will continue to be important in the years up to 2020, Shapiro says the country is becoming a consumer economy, with consumption expected to overtake investment as this country’s largest contributor to gross domestic product (GDP).

China is growing at its slowest pace in 13 years – “by design” –as the government wants a slower, safer economy.

Emerging markets, in general, will also still be important up to 2020, but will fail to dominate, says Shapiro.

“Emerging markets continue to disappoint. They have been unable to turn the opportunities that existed into growth.”

India is plagued by red tape and corruption. Brazil has “let go of the purse strings in 2008”, and Russian growth is flat. China is facing serious social inequality, widespread corruption, rising real estate cost and growing debt.

South Africa suffers from widespread labour unrest, which disrupts production, a declining manufacturing sector, falling commodity prices and electricity supply constraints.

Africa, however, says Shapiro, should not be underestimated as a potential lucrative market. He notes, though, that doing business on the continent is “tough”, asking “a lot of sweat” to operate across 50 borders.

Shapiro also notes that Europe’s economy is finally stabilising, with even the troubled Spain recording 0.1% growth in the third quarter of this year.

Developed economies know how to “change direction” when times became tough and when growth opportunities emerged, he adds.

A lack of skills and infrastructure, and the existence of significant red tape, make it difficult for emerging markets to react.

China, US Wage Gap Closing
Much of the US’ re-emergence will be linked to a natural gas revolution, says Shapiro.

Natural gas prices are at a 20-year low, with production taking place at a fraction of the cost of petrol and diesel. This, in turn, brought down logistics and manufacturing costs.

“All of this is the result of fracking, and it will boost the US economy further,” says Shapiro. “By 2020 the US will be a net exporter of energy.”

This will, in turn, lead to a change in the way the US economy operated, with manufacturing making a strong comeback, especially as large multinationals return manufacturing to the US.

The gas revolution can also change the world’s geopolitics, with the Middle East becoming less important.

The Chinese Yuan had also been appreciating against the dollar in recent times, which means that the Asian country could currently offer only a roughly 15% advantage in manufacturing costs, which is “not great enough” to force manufacturing out of the US, notes Shapiro.

“Wages in the US are now competitive.”

Rising GDP growth will also see US debt – a current concern – shrink as a percentage of GDP.

The Rise and Rise of the JSE
Despite slowing growth in South Africa, the JSE in October broke through the 45 000 point mark for the first time.

How is this possible, when the local economy is struggling to record noticeable growth?

The JSE no longer represents South Africa, explains Shapiro. It acts more as international index, with a large portion of JSE earnings dollar-based.

Simply put: it reflects the international economy, and not the South African economy.

Shapiro adds that the top 15 companies which make up 70% of the JSE are really international companies, such as British American Tobacco (up 25% over the last 12 months), SABMiller (recording 44% growth over the past 12 months), Richemont and Naspers.

A lot of these gains were, however, made on the back of the depreciating rand.

Story highlights:
The decade from 2010 to 2020 will be lead by advancements in information technology, oil and gas, and three-dimensional printing – all markets which should be dominated by the US.
While China will continue to be important in the years up to 2020, the country is becoming a consumer economy, with consumption expected to overtake investment as this country’s largest contributor to gross domestic product.