Weak commodity prices to dent SA’s growth forecasts
The weak commodity price outlook could subtract almost 1 percentage point annually from the growth rate of commodity exporters - including South Africa.
|||Johannesburg - The weak commodity price outlook could subtract almost 1 percentage point annually from the growth rate of commodity exporters, such as South Africa, from this year to 2017 as compared with 2012/14, according to the International Monetary Fund (IMF).
This is bleak news for Finance Minister Nhlanhla Nene, who is expected to revise down his growth forecasts when he presents his medium-term budget policy statement on October 21.
While South Africa has a relatively well-developed manufacturing sector, a meaningful percentage of South Africa’s economy revolves around commodities.
The IMF said in energy exporters, the drag was estimated to be larger – about 2.25 percentage points on average. The grim outlook for commodity prices is contained in an analysis in a chapter released yesterday for inclusion in the IMF’s World Economic Outlook, October 2015.
The analysis said commodity prices had declined sharply over the past three years, and output had slowed considerably among those emerging markets and developing economies that were net exporters of commodities. It said this slowdown was not just a cyclical phenomenon, it had a structural component as well.
Investment, and accordingly potential output, tends to grow at a weaker pace in exporters during commodity price downswings.
The analysis said the decline in potential growth implied the policy response should go beyond demand-side measures and include structural reforms. It said exchange rate flexibility, which has increased among commodity exporters over the last decade, could help smooth the impact of the commodity price downturn.
Reduced commodity-based fiscal revenues and lower potential growth limit the scope for countering the slowdown with fiscal policy.
South Africa’s economy contracted in the second quarter, worsening the outlook for a country grappling with a plunging currency, power shortages, and a slump in commodity prices.
Gross domestic product fell for the first time in more than a year by 1.3 percent from the previous quarter.
Manufacturing, which makes up about 13 percent of the economy, contracted by an annualised 6.3 percent in the second quarter, while mining dropped 6.8 percent, and agriculture declined by 17.4 percent.
Nene is now expected to cut his growth forecasts next month, from 2 percent this year and 3 percent in 2017.
South Africa is the top exporter of platinum, coal, iron ore, gold and other minerals. The prices of these commodities have declined significantly over the past five years.
In its 2015 Budget Review, the Treasury said lower commodity prices, slow growth among major trading partners and volatility in global monetary policy and capital flows would directly affect South Africa over the next several years.
It said weaker commodity demand from China, in particular, was expected to have a negative effect on South Africa’s exports.
BUSINESS REPORT