Aug 03, 2012
SA faces downside risks from Europe and China, bank warnsBack
GDP|Africa|Energy|Eskom|Industrial|Africa|Europe|Brazil|China|India|South Africa|Bank|Energy|Industrial Products|Products|Gill Marcus|Power|Pravin Gordhan|Sandeep Mahajan|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%.
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, the World 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 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 non-oil commodity prices would shave 1.7 percentage points off South Africa’s growth rate. In terms of 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: Martin Zhuwakinyu© Reuse this Comment Guidelines (150 word limit)
Other News This Week News
Updated 6 minutes ago Nigeria-focused oil and gas explorer Oando Energy Resources (OER) on Wednesday announced that it had completed the acquisition of the Nigerian upstream oil and gas business of New York-listed ConocoPhillips for a total cash consideration of $1.5-billion as well as a...
Updated 12 minutes ago The disciplinary hearing of telecommunications giant Telkom’s suspended CFO Jacques Schindehütte was set to resume next Wednesday. Telkom said it hoped the hearing would result in a definitive resolution on the matter of Schindehütte’s personal conduct after a...
Updated 29 minutes ago While unauthorised expenditure by South Africa’s municipalities has declined year-on-year, irregular expenditure has recorded a R2-billion increase as municipalities failed to follow legislated procurement procedures, the latest Auditor-General South Africa audit...
Recent Research Reports
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.
Real Economy Insight: Road and Rail 2014 (PDF Report)
This six-page brief covers key developments in the road and rail industries over the past 12 months, including details of South Africa’s road and rail network and prospects for both sectors.
Real Economy Insight: Steel 2014 (PDF Report)
This four-page brief covers key developments in the steel industry over the past 12 months. It provides an overview of the global and South African steel and stainless steel markets, South Africa’s major steel producers and events that have shaped these markets.
This Week's Magazine
Multinational semiconductor chipmaker corporation Intel announced its national campaign to further acquire partners to drive its She Will Connect programme, an initiative that aims to expand digital literacy skills to young women in developing countries, further into...
South Africa's MeerKAT radio telescope array programme should get back on schedule within a few months. This assurance has been given by SKA South Africa (SKA SA) associate director: science and technology Prof Justin Jonas. Early last month, Science and Technology...
The Passenger Rail Agency of South Africa’s (PRASA’s) Metrorail service will remain a subsidised service following its current multibillion-rand rolling stock, station, depot and signalling upgrade programme. PRASA group CEO Lucky Montana has allayed fears that...
The uncertainties around the remediation of affected areas as addressed in the Contaminated Land Provisions in the National Environmental Management: Waste Act No 59 of 2008 will possibly spark litigation and disputes between landowners and businesses, contractors...
South Africa is currently the largest component of the African Development Bank’s (AfDB’s) active portfolio in Southern Africa, comprising 62.5% of the bank’s $7.9-billion exposure to the 12-country region – the second largest beneficiary is Mauritius, which...