Quarter 3 2017 - Economic review and outlook

14 Jul 2017

Annabel Bishop

Chief Economist

South Africa’s faltering economic performance is at odds with the synchronized global upswing, as domestic issues, evidenced by collapsing confidence and credit rating downgrades, see recession.

Economic Review
Economic Review
2017 shows that the mild pick up in global growth begun in 2016 is continuing and becoming broad based, as global trade continues to lift, along with industrial production. Imports and investment are strengthening as confidence improves, and global lending conditions remain favorable, which are all sustaining the upswing. Global growth is expected to lift to 2.7% this year, from 2.3% last year, and reach 3% by 2018.
While commodity exporters continue to see a differentiated performance, particularly amongst EM (emerging market) and low income countries, this has come down to the main commodity exported. SA is chiefly a metals exporter, and so is falling into the lowest growth category predicted, tracking below some other sub-Saharan countries. Most recently SA has fallen into recession due to a depressed investor climate.
Besides feeble economic outcomes, South Africa continues to experience high government debt ratios and attendant credit rating downgrades, with confidence readings depressed on political and economic policy volatility. Looking forward, SA growth is expected to remain below both world and the sub-Saharan region’s forecasts.
US economic activity is still expected to underpin global growth, with other key advanced economies seeing improvements, and growth rebounding in low income economies and EMs (emerging markets). Commodity prices are expected to firm only slightly, but global industrial activity recover, with confidence levels consequently lifting.
As actual growth continues to fall well below potential growth in South Africa, narrowing output gaps and moderating inflation have raised the prospects of a more accommodative monetary policy stance for SA. However, for a cut to materialise CPI inflation needs to be expected to fall towards 4.5% in 2018, an outcome not yet widely anticipated.
Unless otherwise stated all views in this document are of the baseline case.  
Economic Review
The modest upswing in global growth is expected to strengthen, as the systemic improvement gains traction on further advances in both trade activity and investment levels globally.

However, commodity prices are not expected to see a substantial rise, especially those of metals.

The Q1.17 expectation of a mild acceleration in global economic growth on improvements in key advanced economies and emerging markets, along with some low-income economies, became increasingly evident over Q2.17.

SA’s economic performance is constrained by, among other factors, rising government debt/ % GDP (which limits fixed investment) and frequent, conflicting political and economic policy proposals. These create uncertainty and so suppress business confidence levels, which in turn has a direct, negative impact on economic growth. In turn, this lowers credit ratings.

Business confidence readings are severely depressed, with 71% of respondents dissatisfied with the operating environment. Since 2009 on average 59% of respondents have been dissatisfied with the operating environment, which shows the environment is worsening.
Economic Review

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