International organisations are predicting that most global regions are heading for a period of reduced economic growth, with the Sub-Saharan region being one of the few exceptions. South Africa, however, is bunking the Africa trend. The country is expected to return growth rates below the global average for both 2012 and 2013, with an increasing danger of slipping into recessionary conditions.
The International Monetary Fund (IMF) last week reduced its forecast for global growth this year to 3.3% from 3.5%, as well as dropping its expectations for 2013 to 3.6% from 3.9%. The expectation for South Africa is weak growth of around 2.6% for 2012 and a growth rate of 3.0% in 2013.
In contrast the IMF predicts the Sub-Sahara African region's economy to return a growth rate of 5.0% for 2012. This is a little slower than expected but is anticipated to notch up to 5.7% in 2013.
"Sub-Saharan Africa is expected to continue growing strongly in the near term," the Fund said in its latest World Economic Outlook report.
It ascribes South Africa’s situation in part to spillovers from Europe's debt crisis. Europe remains the main destination for South African exports.
The IMF’s assessment of the state of the global economy was also largely supported by a report of the Organisation for Economic Cooperation and Development on Composite Leading Indicators (CLIs) released on Monday last week. The CLIs, designed to anticipate turning points in economic activity relative to trends, show that most major economies will continue to see weakening growth in the coming quarters.
The OECD reported that the CLIs for the United States and Japan continue to show signs of moderating growth while in Canada the CLIs points to weak growth. In Germany, France, Italy and the Euro Area as a whole, the CLIs point to continued weakening growth.
In China, the CLIs point to soft growth, but tentative signs are emerging that the recent deterioration in the short-term outlook may have stabilised. In India and Russia, the CLIs continue to point to weak growth.
The CLIs for the United Kingdom and Brazil continue to point to a pick-up in growth.
Bad news for South Africa
For South Africa, bad news on the economic front is implied in both the IMF and OECD reports.
According to the IMF the euro area is expected to contract by 0.4% this year, as is the case with the United Kingdom from an earlier projected growth rate of 0.2%.
The IMF revised its projections for the Chinese economy to grow at a slower rate of 7.8%. Among other downward revisions were Brazil (to 1.5% from 2.5%) and India (to 4.9% from 6.1%).
On the flipside, the IMF raised its expectations for Africa in 2013 to 5.7% from 5.3%. Europe’s woes have hit South Africa hard, though, with 2013 economic growth predictions revised downward to 3% from an earlier 3.3%, the report states.
Ghana and the Ivory Coast are expected to top the Sub-Saharan region's growth of over 8% this year.
The South Africa's is, however, not the only developing economy to pick up flak from problems in Europe and elsewhere. In the last two weeks the World Bank slashed its 2012 growth forecast for developing countries in East Asia and the Pacific region to 7.2%, dragged down by China's worst performance in 13 years. And the Asian Development Bank reduced its estimate for Asia's emerging economies to the lowest level since 2009, while also warning of significant risks from problems in Europe and the United States.
Already in July of this year the South African Reserve Bank unexpectedly trimmed its repo rate by half a percentage point to 5%, citing concern over the risks the global downturn poses to the economy.
In its latest report the IMF states that South Africa may have to rely on monetary policy to cushion the economy against the effects of the global slowdown. It noted that room for fiscal manoeuvre was limited, suggesting that it believes there could be scope for further interest rate cuts in South Africa. Most analysts however, regard such a scenario as unlikely, unless the global environment worsens considerably.
For South Africa the present labour turmoil, triggered by the violent strikes on the platinum mines, could probably not have come at a worst time.
In the first week of October Sapa reported economists as saying that South Africans can expect a tough two years ahead as the economy feels the pinch of strikes.
"Unless we have sensible heads putting their hands up now, we're going to see a [downward] spiral for the next few years," the news agency reported Chris Hart, senior economist at Investment Solutions, as saying.
There were warnings that the country could face multiple credit downgrades and high inflation. And economist Mike Schussler said there was hope in the long term but for now, it was "doom and gloom".
He also said there was a 20% chance of the country hitting a recession, up from between 5% to 10%. The chances of over 3% growth in the next two quarters were less than 10% and the country was in for a period of slow, stagnating growth.
"Hopefully, we will learn lessons from the wildcat strikes and start to have honest discussion in South Africa like what do we need to do to stay competitive and to grow jobs," he said.