Growth expectations for developing economies have been revised lower since the beginning of the year given the negative impact of interest rate increases and currency volatility on domestic demand. Although these headwinds are likely to persist over the short term in the form of economic imbalances and deteriorating terms of trade, we maintain our positive long-term view on developing economies, given favourable demographics, high saving rates, strong urbanizing trends. However, over the near term horizon, the impetus to global growth will likely be driven by developed economies such as the US, where personal consumption expenditure growth has remained robust on the back of improving employment conditions, rising consumer confidence and the positive wealth effect from rising home prices. In Europe, investment growth has been depressed over the past five years, and a pickup on this front combined with a lower fiscal drag could also provide an important tailwind to its recovery over the next decade.

The South African economy has been impacted by on-going strikes in the mining and manufacturing sectors, bringing 2014 growth expectations steadily down to 1.5%. In light of these developments, policy interest rate increases in South Africa have been more tentative than those within its emerging market peers, as domestic policymakers are reluctant to further squeeze short term economic growth. While headwinds have been significant in recent months, there are still a number of reasons to be optimistic about South Africa's future growth prospects. With respect to inflation, currency volatility has created significant uncertainty over the past year. However, a steady oil price and declining agricultural prices globally should provide much needed downward pressure on headline inflation figures, supporting consumer demand to some extent. Over the long term, additions to electricity capacity also have the potential to unlock significant growth in the industrial sectors of the economy, as major power projects are rolled out over the course of the next 10 years. The intensification of policy implementation could also prove to be an important tailwind to growth, as investor confidence in South Africa improves and structural reforms lift the economy's potential growth rate.

We have seen an increase in new shopping centres in Johannesburg and Pretoria but the demand from national food and fashion tenants for good retail locations remain robust. In the industrial market, the demand for logistics space remains solid and rentals are stable and vacancies low. Demand in the office market is closely linked with business confidence and the employment outlook which is going to take time to recover. SA REITS are currently delivering a yield of 6.3% relative to the SA 10yr bond yield of 8.2% and higher bond yields are a risk but SA REITS are expected to deliver 7-8% income growth per annum over the medium term and their balance sheets are strong.

The South African economy has been impacted by on-going strikes in the industrial sector, bringing 2014 growth expectations steadily down to 2% and below. The slowdown has been further intensified by a credit extension pullback, led by more sustainable unsecured lending growth. In light of these developments, policy interest rate increases in South Africa have been more tentative than those within its emerging market peers, as domestic policymakers are reluctant to further squeeze short term economic growth. While short term headwinds have been significant, there are still a number of reasons to be optimistic about South Africa's growth prospects over the next five years. Additions to electricity capacity in the next two years have the potential to unlock significant growth in the manufacturing and mining sectors. The intensification of policy implementation could also prove to be an important tailwind to growth, as investor confidence in South Africa improves and structural reforms lift the economy's potential growth rate. These factors underpin the South African Reserve Bank and IMF's forecast for substantially improved growth in the years ahead, to average above 3% in the years through 2019.

There is solid demand for warehouse and logistics space and rentals for industrial properties in South Africa remain stable and vacancies are low. In the retail sector we are seeing an increase in new shopping centres in Johannesburg and Pretoria but the demand from national food and fashion tenants for good locations remain robust. The office market is going to take time to recover due to the demand being closely linked with business confidence and employment and we have also seen significant new supply in the Sandton and Cape Town office markets. SA REITS are currently delivering a yield of 6.4% relative to the SA 10yr bond yield of 8.2% and higher bond yields are a risk but SA REITS are expected to deliver 6% to 7% income growth per annum over the medium term and their balance sheets are strong.

South African economic growth is expected to accelerate in 2014 after coming in at 1.9% last year. While consumption growth has come under pressure due primarily to a slowdown in credit extension, the exporting sectors of the economy and tourism are expected to benefit substantially from recent weakness in the currency. Inflationary pressures are likely to intensify over the short term, as higher agricultural prices begin to reflect at retail stores. However, over the medium term an expected stabilisation in the rand should keep inflation within the Reserve Bank's 3% to 6% target band. The current account deficit narrowed to 5.1% of GDP in the final quarter of 2013, and is expected to continue narrowing over the medium term as import growth slows and export figures improve. Although the wide deficit and concerns over the end of quantitative easing continued to put pressure on the exchange rate in recent months, the country's relatively strong fiscal position and improving competitiveness will in all likelihood mitigate these pressures going forward.

We continue to see new office property supply coming to the Johannesburg and Cape Town markets and any recovery in rental is dependent on stronger growth in the economy and a recovery in corporate employment and activity. Demand from national and international retailers for space in strong nodes continue to support South African shopping centre rentals while the demand in the industrial logistics market is firm and vacancies remain low. SA REITS are currently delivering a yield of 6.4% relative to the SA 10yr bond yield of 8.2% and higher bond yields are a risk but SA REITS are expected to deliver 6% to 7% income growth per annum over the medium term and their balance sheets are strong.