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)
Recent Research Reports
Construction 2015: A review of South Africa’s construction sector (PDF Report)
Creamer Media’s Construction 2015 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; the key participants in the sector; local construction demand; geographic diversification;...
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
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.
This Week's Magazine
The international Square Kilometre Array (SKA) radio telescope – which is to be jointly hosted by South Africa and Australia with, later, outstations in other countries – may not yet exist, but international scientific working groups are already deciding what...
A free Web-based solar power plant capacity-planning tool offers project planners and developers, as well as governments, a means to assess the solar energy potential of thin-film solar PV power over an area of land. The tool was developed by thin-film solar...
As yet, no specific methodology, timeline or costs have been finalised to remedy the water ingress, excessive to contractual specifications, into the Gautrain tunnel between emergency shaft two (E2) and Park Station, says Bombela Concession Company technical and...
The “seriously disruptive” electricity outages in South Africa have cost packaging group Astrapak more than R2-million in “irrecoverable downtime costs”, the company said on Monday, adding that the power cuts were negating some of the benefit of energy saving...
Bakkies and more affordable cars dominated South Africa’s new vehicle market in 2014. Unaudited data from the Department of Trade and Industry (DTI) shows that South Africa’s most popular vehicle in 2014 was the Toyota Hilux, selling 37 562 units.