CEMEA 2023: Where are we heading - Chief Economist's view
Visa's Chief Economist, Wayne Best, provides unique insights on consumer behavior alongside key macro and microeconomic trends.
Wayne Best, Visa's Chief Economist described the economic situation at the end of 2022 as, "A funny thing happened on the way to the global recession," meaning that a global slowdown is still expected, but the outlook is not quite as bad as some had predicted in mid 2022. At that time, China was still enforcing a zero-Covid lockdown, and the Russian invasion of Ukraine was threatening energy supplies in Europe, with winter still to come.
Since then, China has opened up its borders and Europe had relatively good weather, easing the energy crunch.
In the end, Best still expects a pause in the global economy or a slight decline at worst, but this is a very different outlook than before.
Central and Eastern Europe, Middle East and Africa still face challenges
In terms of real GDP forecasts, all of the Central Europe, Middle East and Africa (CEMEA) sub-regions are expected to slow down in 2023 but are starting to return to normal rates or slightly above, compared to pre-pandemic levels.
The Commonwealth of Independent States and South and Eastern Europe (CISSEE) has fared the worst because of its trade ties with Ukraine and Russia. Its GDP actually contracted in 2022 but is expected to grow modestly in 2023.
Inflation is still a challenge across CEMEA with food as the main driver. This is particularly the case in North Africa and Sub-Saharan Africa, and even more so in Ukraine, but that is due to the ongoing conflict.
However, while year-on-year inflation is still fairly high, consumers are reacting to what is called, "instantaneous inflation," or the feeling they get week-to-week as necessities like gasoline ease off their early 2022 peaks. That, plus commodity prices trending down and the easing of supply chain disruptions from their pandemic highs have all contributed to an encouraging rise in consumer spending.
Interestingly, analysis leveraging the Visa Spending Momentum Index (SMI) reveals that in 2022, inflation ran hotter in areas with older populations, as retirement led to a shortage of workers1. This could affect CEMEA countries such as Morocco.
Travel a bright spot
Encouragingly, global travel seems to be on the verge of full recovery. Outbound travel in CEMEA is already doing well and nearly recovered in 2022.
Asia Pacific was lagging behind, but as mentioned before, China’s lifting of its coronavirus controls removes a major barrier. A recent Visa Special report: Global Travel Insight estimates a full recovery to 2019 levels by July 2023. This assumes monthly outbound travel from Asia Pacific tracks with other regions’ recoveries. And Asia Pacific’s travel spend is recovering at a faster pace that other regions. For instance, 2022’s retail tourism spend by consumers from Asia Pacific using Visa-branded credentials in Dubai was 213 % of 2019 levels.
CEMEA’s long-term economic fundamentals remain favorable
Best points out that the world’s population reached 8 billion in October of 2022, and estimates that will reach 9 billion person in 2037, which will affect many aspects of the global economy. Both Africa and the Middle East have young, tech-savvy populations. In Africa, 42% of the population is under 15 years old and in the Middle East that figure is 32%. This means that by 2037, CEMEA will add a larger share of working age people than Asia Pacific and the rest of the world.
This coincides with the changing face of the median consumer in the region, as Generation X passes the baton to Generation Z. Companies will need to cater to the younger generation, which favors businesses that show some ability to be sustainable.
Not only that, but Africa and the Middle East are expected to see impressive growth rates in the size of the middle class by 2030. In the Middle East it’s expected to grow by 39% and in Africa by 43%. That will lead to higher consumer spending and bring more people into the traveling class.
Overall, Best said of CEMEA, “I don't know of another region with demographics that are so favorable,” and he points out that how companies adjust for these growing population trends will determine their success in the future.
Watch full recording from the CEMEA Security Summit here.
1Visa Business and Economic Insights, Global Economic Insight, March 2023