Growing pains
It’s been said that GDP provides an incomplete picture of a country’s economic wellbeing. But in the absence of an indicator that is as starkly definitive, we measure economic progress according to its telling, all-important percentages pointing to overal
The global picture is a little rosier – the IMF predicts global growth will strengthen to 3.5% this year, from 3.2% last year. It expects 2014’s growth to be in the range of 4.1%.
Absa Investment’s recently released economic overview takes a similar view, suggesting global growth could tick up to 3.3% this year and 4.0% in 2014. And it is equally looking at 2.8% growth for South Africa this year. But its estimate for 2014 growth is 3.5%, quite a bit lower than the IMF’s bullish 4.1% estimate (though in recent years the IMF has ultimately reduced its more optimistic initial forecasts).
Although Absa anticipates that South Africa’s growth will lag behind that of Brazil, Russia, India and China, it will nevertheless be a little more robust than growth in the Eurozone, the US and UK – in fact, developed nations will still struggle to get back on their feet, says Craig Pheiffer, general manager of Absa Asset Management.
Pheiffer predicts that Asia will be the bright star on the horizon, with countries like India, Indonesia, Malaysia and Singapore expected to lead the way. China’s slowing growth may have been a concern but it will hold its own in 2013 and 2014, Pheiffer predicts, and Japan has implemented some good policy decisions that could see its economy getting a much-needed boost post-Fukushima.
Challenges for South Africa
Pheiffer says our macro-economic policies are sound but this year we will have to focus on reducing our twin deficits: budget and current account.
Treasury projected our 2012/13 budget deficit at 4.8% of GDP, but Pravin Gordhan pushed this out to 4.9% in October last year. South Africa is running bigger deficits than other emerging market economies but it seems likely that an increase in taxes will go some way towards reducing the deficit and rebalancing the books, says Pheiffer.
Our current account deficit, which is largely finance by foreign inflows, will likely be under intense pressure this year and keeping interest rates unchanged was probably wise. The weaker rand should boost our net exports and also keep us competitive on the tourism side, which is some good news; but a weak rand can also lead to inflation and we don’t want to reach the upper limit of the Reserve Bank’s inflation target.
Meanwhile, the Reserve Bank released its leading economic indicator (LEI) for November 2012 and it records an encouraging rise – Kevin Lings, chief economist at Stanlib, says it has risen in each of the past five months (as at January).
Seven of the LEI’s 11 components rose, telling a cautiously optimistic story of growth. There has been an increase in job advertisements in the Sunday Times and although business confidence dropped a little towards the end of last year there’s been an encouraging lift in the 12-month percentage change of the composite leading business cycle indicator of South Africa’s major trading-partner countries.
The LEI has a good correlation with the Organisation for Economic Co-operation and Development (OECD) leading indicator (the lag is about one to three months, so when global growth ticks up it takes no longer than a business quarter for us to feel it).
Although the LEI showed a loss of momentum in the middle of 2012, it would appear that a slightly more improved global economic outlook has pushed our indicator higher. Lings foresees “a modest ongoing economic recovery”, more or less in line with analysts’ revised growth rate of 2.7%, down from 3%.
Editor’s thoughts:
Although a lot of factors have made us feel insecure as a nation – the Moody’s, S&P and Fitch downgrades, the weaker rand, strikes, protests and uncertainty in the mining sector – it seems there are still enough positives for us to remain optimistic. What government does this year will be crucial as we have reached a tipping point at which we can probably say things will either get a lot better – or a whole lot worse. Tell us what you think below or email [email protected].
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