Rand Merchant Bank (RMB) has lowered its 2013 economic growth forecast for South Africa to 1.9%, from 2.4%, as the country’s consumer spending slowed.
Speaking at an international credit insurer Coface Country Risk conference, in Sandton, on Wednesday, RMB chief economist Ettienne le Roux said domestic demand had supported the nation’s turnaround after the global financial crisis, but consumers, which accounted for 65% of gross domestic product (GDP), were increasingly under pressure.
Domestic consumption boosted the recovery of the transport, communication, construction, finance, trade and general government sectors above pre-recession levels, while external-oriented sectors, such as agriculture, mining and manufacturing, remained below pre-recession levels, stifling exports.
“We, in essence, consumed our way out of the recession, while others exported their way out,” he explained.
Exports had fallen 25% since the global financial crisis and, owing to a weak recovery, still remained 12% below 2008 levels.
Household expenditure rose 12%, with discretionary spending accounting for half and reaching an all-time high, Le Roux commented.
He stated that household expenditure growth would slow from 4.4% and 4.8% in 2010 and 2011 respectively, and 3.5% last year, to 2.4% during 2013, before rising to 3.1% in 2014.
To maintain the country’s sovereign rating, reduce budget deficit and propel growth, the National Treasury was reigning in government consumption expenditure, with the gap between government’s actual and projected yearly consumption expenditures narrowing and social grant payments stagnating, in efforts to slow down spending.
Government consumption expenditure, which was 5% in 2010, would continue to slow and is expected to fall to 3.3% in 2013, before increasing to 4.1% next year.
Further, gross fixed investment would decrease to 3.7% this year, before increasing to 4.3% in 2014.
Le Roux said State-owned enterprises recorded 30% growth in investment since the recession, but government fixed investment, contributing 3% of GDP, and private sector fixed investment, at 13% of GDP, remained below pre-crisis levels.
The private sector had refocused its investments into machinery and computer and related equipment enabling business to become more efficient and productive, as business confidence dipped and uncertainty reigned.
Business confidence moved back into negative territory during the second quarter, after confidence faltered in four of the five sectors surveyed in the RMB and Bureau for Economic Research (BER) Business Confidence Index (BCI).
The RMB/BER BCI recorded a four-point decline to 48 points during the second quarter, after recording a six-point rise in the first quarter – placing confidence close to the post-recession peak of 55 reported two years ago.
In June, the World Bank lowered its 2013 economic growth forecast to 2.5%, after projecting an economic expansion of 3.2% in July.
This followed the country’s weakest quarterly growth since the recession, slowing to 0.9% during the first quarter of the year, from 2.1% in the fourth quarter of 2012.
Meanwhile, the outlook for the eurozone remained negative for the next four to five years, said Coface head of country risk Julien Marcilly.
He commented that the eurozone’s GDP was expected to contract to -0.6%, despite the member countries’ household wealth, as consumers continue to save in anticipation of rising unemployment, which, in turn, weighed on economic growth.
The US would grow 1.8%, Japan 1.4% and the UK 0.6% during 2013.
Collectively, the world was expected to record growth of 2.7%, with emerging economies achieving 4.9%.
Despite China’s rapid 8% growth expectations for the year, emerging Asia held a potential “credit bubble burst”, he commented.
China had accumulated its growth on the back of financial risks.
“The overall stock of credit was too high and not sustainable”, Marcilly explained, but added that despite this, overall growth for the region was positive.