As the global outlook darkens, things are getting worse for the South African economy, says Jeff Schultz, BNP Paribas’ lead economist for the Middle East and Africa.
The monetary organization revised its economic growth outlook for South Africa downwards to 1. 7% by 2022, while sharply cutting estimates for 2023, falling 0. 6 percentage points to 0. 2%.
In a Wednesday, Sept. 9, note, Schultz said that with the U. S. and Europe poised to face a recession in 2023 and China facing situations demanding its own expansion as it tries to adjust its zero-covid policy, South Africa’s expansion and business “doesn’t look good. “
“A recession in developed markets is vital for South Africa: our emerging markets team’s research on sensitivities to growth slowdowns in key regions indicates that South Africa’s growth and activity are well correlated with the US. (pp) in the internal market. The expansion of each and every 1 pp replaces the expansion of the US. “The U. S. ” said.
In addition, tenuous problems of structural expansion, such as the supply of electricity from domestic electricity generation that fell to recent recessionary levels, have led the monetary institution to further cut its GDP expansion forecasts, which were already well agreed.
According to Schultz, the downward revision of the 2022 GDP estimate is based on confidence that the current part of the year will have been negatively affected by an even worse load loss than the group’s already bearish estimates.
This view was exacerbated by the transitory force majeure in the main ports due to commercial action at the beginning of the quarter.
“Our productivity problems in an economy with a prospective state of short-term expansion lately at a meager 0. 2%, recovering only marginally from the expansion blow of Covid-19. Most likely, this will complicate policymaking until 2023,” he said.
BNP Paribas has taken a bearish view of the South African economy, saying it believes peak inflation levels will persist longer than many other economists and analysts expected.
“We have long argued that we expect inflation to become more rigid than expected in 2023, thanks to higher wage arrangements, stock replenishment and declining productivity. We have that outlook and expect headline CPI inflation to rise. “moderate to 5. 8% above consensus in 2023, from an estimated 6. 8% in 2022,” he said.
Overall, the organization sees inflation slowly retreating to the Reserve Bank’s median target of 4. 5% from expiration 2024, months later than the most optimistic projections of an early to mid-2024 return to the range. objective.
“This opens up a complicated era of stagflation for the South African economy in 2023, in our view,” he said.
Because of this gloomy outlook, the monetary organization said South Africans do not deserve to expect the Reserve Bank to abandon its rate-raising cycle anytime soon.
“Stagflation situations are far from ideal for SARB, but don’t expect the central bank to blink in its pursuit of value stability,” he said.
The company expects at least another 75 bps increase on November 24, not the option of a 100 bp increase, followed by a final 50 bp increase in January to a terminal of 7. 50%.
“We see more threats than less upside in 2023, and we believe that much will depend on the behavior of the rand, which at the moment appears to be at the mercy of deteriorating global economic conditions,” the organization said.
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