Jul 24, 2012
Bank warns of more risks as it cuts 2012 SA growth outlook to 2.5%Back
Africa|Eskom|Industrial|South Africa Sandeep Mahajan|Africa|Europe|Brazil|China|India|South Africa|Bank|Energy|Gross Domestic Product|Industrial Products|Products|Gill Marcus|Power|Pravin Gordhan|Simulation
© Reuse this
The bank’s lead economist for South Africa Sandeep Mahajan said the 2.5% ‘base case’ – which is also below the 2.7% forecast by Finance Minister Pravin Gordhan in February – was premised on world GDP growth of 2.5% during 2012, a 0.3% contraction in the eurozone and lower growth in the key emerging markets of China, India and Brazil.
Earlier, Gordhan indicated that growth was likely to fall short of the 2.7% forecast of February, after the South African Reserve Bank, which cut interest rates on July 19, trimmed its growth forecast to 2.7%, from 2.9 percent.
Governor Gill Marcus warned that risks to the country’s GDP projection were to the downside, particularly if the economic stagnation in the eurozone intensified.
South Africa, the World Bank warned, was vulnerable to both the slowing economies of Europe, which consumed many of its industrial products, as well as to a slowdown in the rate of expansion in China, which consumed many of its commodities.
The country was particularly sensitive to changes in the eurozone's outlook, with Mahajan indicating that for every one percentage point change in the territory’s GDP South Africa’s GDP adjusted by 0.8 of a percentage point.
The strong correlation meant that the downside risks to South Africa associated with a decline in the eurozone beyond that which was currently being projected were material.
To illustrate this vulnerability, bank had developed two downside-risk scenarios: the first assumes a severe credit squeeze in one of two eurozone members, with limited contagion; while the second was premised on a “disorderly resolution to the crisis”.
The model shows that, under the first scenario a further 1.5% percentage points would be shaved off South Africa’s already fragile growth. Under the second, the simulation indicated that 2.2 percentage points could be lopped off the country’s growth outlook.
However, the downside risks were not limited to the resolution of the economic crisis in Europe. Mahajan warned that lower commodity prices, precipitated by any further cooling of the Chinese economy, represented a major potential threat.
The bank showed that a 20% fall in nonoil commodity prices would shave 1.7 percentage points off South Africa’s growth rate. Under the model “South Africa is among the ten countries to be hit most by the drop in commodity prices”, the bank’s biannual ‘South Africa Economic Update’ indicated.
Under the baseline scenario, the report expected South Africa’s GDP growth to recover to 3.5% by 2014, which Mahajan described as the new growth base for the coming 15 years.
The figure fell well short of the 7% highlighted as necessary by the South African government to deal with the country’s chronic unemployment rate, which currently stood at above 25%.
Mahajan concurred that it would be insufficient to generate the jobs needed to deal with the problem, but said the outlook was constrained by South Africa’s prevailing power shortages.
“An important constraint on a faster pickup in growth is likely to be bottlenecks in electricity supply, which is already rubbing against peak demand and will continue to do so until fresh large-scale generation capacity comes on board and Eskom’s demand-side management measures for greater energy efficiency take firmer root,” the report noted.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines (150 word limit)
Other Construction News
Updated 1 hour 28 minutes ago Sephaku Holdings, which is in the process of finalising its interim results for the six months ended September 30, expects to swing to a basic loss a share of between 1.9c and 2c for the half-year, from basic earnings a share of 3.32c in the first half of the prior...
Updated 5 hours ago A high-standard technical paper, titled ‘Laser metal deposition microstructure of modified low-C martensitic stainless steel’, has secured two Council for Scientific and Industrial Research (CSIR) metallurgists and a University of Pretoria (UP) professor the...
Updated 5 hours ago The Paledi Mall, in the Limpopo town of Mankweng, has opened its doors to shoppers after undergoing a R282-million refurbishment. The community shopping centre, which was partly financed by a R125-million loan provided by Nedbank Corporate Property Finance to...
Updated 2 minutes ago South Africans needed to become more entrepreneurial and create their own jobs, instead of expecting government to create jobs or rely on private-sector employment. “We need to become masters of our own destinies,” Small Business Development Deputy Minister Elizabeth...
Updated 3 minutes ago Plans to increase gross domestic expenditure on research and development (GERD) to 1.5% of gross domestic product by 2019 are yet to be formally adopted, despite the target being incorporated in the draft strategic plan of the Department of Science and Technology...
Updated 13 minutes ago Statistics South Africa (Stats SA) would, in future, focus more strongly on the trends of long-term unemployment in its quarterly labour force surveys (QLFSs), statistician-general Pali Lehola said on Thursday. Releasing the QLFS for the three months ended September...
Recent Research Reports
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
This Week's Magazine
Integrated energy and chemical company Sasol has partnered with Unisa Graduate School of Business Leadership (SBL) professor and founder and CEO of PanAvest Partnership Dr Douglas Boateng to publish a series of books on executive supply chain management aimed at...
The World Wide Fund for Nature’s (WWF’s) 2014 Living Planet Index (LPI) indicates that there has been a 52% decline in vertebrate species since 1970. The Index tracked the trends of 10 000 discrete populations of over 3000 vertebrate species between 1970 and 2010.
Rwanda has joined a number of East African countries seeking to import electricity from Ethiopia as its demand grows. After it became apparent several generation project it is implementing will not come on stream early enough, now plans to import 400 MW from Ethiopia...
Metrorail’s first new passenger train will arrive in November next year, says Passenger Rail Agency of South Africa (PRASA) CEO Lucky Montana. “Next year we will be able to put our hands around the infrastructure and equipment we have been talking about for so long.”
The Competition Commission has launched an investigation into what it says are “price fixing, market division and collusive tendering in the market for the manufacture and supply of automotive components to original equipment manufacturers” (OEMs, or vehicle...