Financial Mail and Business Day

Inflation and interest rates could be silver lining in 2023

ANNABEL BISHOP ● Bishop is Investec chief economist.

Risk factors unwinding could lead to a better outcome for 2023 than what is now expected, with inflation and interest rates having the potential to surprise lower.

This year, the sharp rise in the cost of living globally came as a shock. Consumer inflation in 2022 was far higher than expected (now forecast at 8.3%).

At the beginning of the year the forecast was 3.9%. These projections are collated by FocusEconomics and are mean averages of projections of economic international forecasters surveyed.

Global consumer inflation is expected to average 5.7% in 2023, driven by the euro area and developing economies. A key driver of inflation globally and domestically in 2023 will be the suppressing base effects from the year-on-year calculation, with prices rising sharply this year but not likely at the same pace next year, causing inflation to come out lower, and potentially lower than expected too.

Consensus is for global GDP growth of 2% in 2023, with European growth stalling and the US at a weak 0.4%.

CHINA

Meaningful risks will remain, though some of these factors are unwinding, particularly zerotolerance Covid-19 restrictions in China that choked its economic growth this year, slowing global growth as the country has the world’s secondlargest economy.

The Ukraine war has receded in terms of key market focus, largely replaced by concern about revision of global growth expectations in April as it became clear that interest rates were rising sharply.

On interest rates, the US has seen recent communication from Federal Reserve chair Jerome Powell moving away from his severely hawkish stance, highlighting milder hikes in the US with greater sensitivity to the effects on the economy.

These are positive developments, but for SA economic growth much also depends on domestic politics.

The section 89 panel report on the theft of dollars at President Cyril Ramaphosa’s game farm sparked a market reaction and concern about the country’s stability.

Risk to Ramaphosa’s presidency appears to have unwound this week as he began stabilising his position and pushing back against his opponents. An impeachment vote in parliament was delayed for a week to December 13 and Ramaphosa has taken the report on review to the Constitutional Court.

NOISE

The ANC national executive committee voted unanimously to support Ramaphosa, and decided that the ANC MPs in parliament will not support adoption of the Phala Phala report. Clearing his name in the Constitutional Court would see Ramaphosa remove his opponents’ ammunition, additionally strengthening his position and that of his supporters, and his position as president next year.

With the apex court still to decide whether it will hear the case, the political noise will go on as the finding cannot be a rushed affair.

The ANC elective conference is due to start next week, with Ramaphosa still popular in his party and its national executive committee, which considers the report flawed due to its lack of evidence.

An impeachment vote from individual MPs will show who are against Ramaphosa, and by declaring their hand as opponents they will weaken themselves politically.

RESHUFFLE

If he is still president next year, Ramaphosa could reshuffle his cabinet and remove opponents to his economic policies and reforms for speedier implementation of structural reform.

SA’s small, open economy will be negatively affected by weakening global growth.

But a finding by the Constitutional Court against the Phala Phala report would solidify Ramaphosa’s base and strengthen his hand in 2023.

Such an outcome could help speed up implementation of reform of electricity, rail and port services as well as water infrastructure, bolstering economic growth, state revenue and economic stability.

Ramaphosa’s continued presidency will not in itself guarantee faster growth, lower unemployment or eradication of failings in the state bureaucracy and municipalities.

But a strong education system and sufficient electricity, water, rail and port transport, among other factors, will. The proof will be in whether implementation does quicken next year on these reforms.

Ramaphosa remaining in his position will be best for the country only if it eventually delivers the types of gains made in the Thabo Mbeki presidency when, by his second term, unemployment dropped to 21% from 30% and economic growth exceeded 5% a year. Mbeki did not, however, have anything like Covid-19 to deal with.

RAMAPHOSA’S CONTINUED PRESIDENCY WILL NOT IN ITSELF GUARANTEE FASTER GROWTH, LOWER UNEMPLOYMENT OR ERADICATION OF STATE FAILINGS

THE BOTTOM LINE

en-za

2022-12-08T08:00:00.0000000Z

2022-12-08T08:00:00.0000000Z

https://tisobg.pressreader.com/article/281809992931459

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