Bearish Reserve Bank puts a damper on growth hopes

For the second time since its return to the office last year, the Reserve Bank held its monetary policy media conference at its interim head office in leafy Centurion on Thursday, not in that high apartheid black edifice in central Pretoria, which is being renovated.

But though the surrounds were more pleasant, the economic growth numbers the Bank put on the table made you want to weep. It now expects the economy to grow (if growth it can be called) by just 0.3% this year. That’ sa precipitous downward revision from its 1.1% forecast as recently as November.

It is also well below economists’ current consensus forecast of more than 1% and last year’s growth rate, which is expected to come in well more than 2%. Even in the worst of the Zuma lost years things didn’t get that bad.

Nor does it get much better over the next two years, with growth edging up to just 0.7% in 2024 and a heady 1% in 2025, also sharply down from the Bank’s previous forecasts.

If things do turn out this bad, it means average growth of about 0.6% when the population is growing at more than double that. So average living standards go rapidly backwards, and let’s not even think about unemployment.

The reason the Bank’s forecasts are cratering? Loadshedding is the nub of it. Without load-shedding the economy could grow at 2.3% this year, the Bank’s new estimates suggest. It now sees load-shedding slashing as much as two percentage points from the growth rate, up from its November estimate of 0.6%

— because it expects loadshedding to be so much longer and more intense than it did previously, for 2023 and going into the next couple of years.

It’s not only load-shedding this year. The Bank also mentions “other logistical constraints”, for which read Transnet, with the trains that don’t run and the ports that can’t export. Lower growth feeds on itself, in a sense, because it means weaker investment and weaker household spending over the next couple of years. And that’s on top of weaker exports as commodity prices subside.

If there’s any comfort it is that “prospects for growth appear even more uncertain than normal”, in the Bank’s words. At home and abroad, things could turn out better than the bearish Bank expects. The fact that SA’s own official growth statistics have been so volatile, providing often inexplicable upside or downside surprises, doesn’t help.

But nobody really knows right now. The Bank is having to put numbers to the future at a time when policymakers and economists everywhere are trying to work out what the world will look like in the next couple of years.

Take the commodity cycle, which has been so important to SA’s economic and fiscal fortunes over the past couple of boom years. Prices are off last year’s record peaks but still high relative to history. And some of the ones that matter to SA, such as gold and iron ore, have been rising in rand terms in 2023 even though others such as coal have been falling.

With the global economy slowing sharply and talk of recession in Europe, the UK and possibly the US, what happens to our commodity exports will be a key swing factor for SA. There is hot debate among the experts about the outlook for commodity prices, and whether China’s rapid reopening will outweigh the effect of a global slowdown on commodity prices.

The trouble is that SA has relied on prices to benefit from the commodity boom since 2021. It hasn’t seen any meaningful increase in volumes — in large part because of those load-shedding and logistics constraints.

So if the bears are right and prices really crash, there won’t be higher volumes to offset that.

Nor has SA seen much increase in investment. Mining companies, and many others, are investing heavily in new renewable energy, and backup power generally, which is one of the big reasons why SA has seen a bit of a pickup in investment.

But that’s helping them to keep their existing operations going — it is not expanding the productive capacity of the economy in a way that positions it to grow faster in future.

And it’s the longer term future policymakers should be worrying about just as much as the cyclical ups and downs of the next couple of years. In theory, SA could grow faster than the rest of the world if it just got its act together and fixed its electricity and trains, never mind all the other infrastructure and crime issues preventing it from growing. The Bank’s load-shedding models are evidence of that.

However, we are going into a world economy that could be far more difficult for a small open economy such as SA in the next few decades than it has been in the past couple.

The IMF and others have been sounding warnings about global fragmentation and how it could slow the productivity and growth increases the world has seen in recent decades.

In a recent report Goldman Sachs projected the outlook out to 2075 for 104 economies. The bottom line is that the global growth trend “has passed the high-water mark”.

It had already slowed to 3.2% a year in the decade before Covid-19, but Goldman Sachs sees it declining to 2.8% between 2024 and 2029 and gradually after that.

Weaker global population growth is the main reason, but Goldman Sachs’ economists also talk about the US’s strong performance of the past decade as unlikely to be repeated and how rising inequality is increasingly posing challenges to globalisation.

On the upside, it sees emerging market economies continuing to grow faster than developed markets and argues that by 2075 Nigeria, Pakistan and Egypt could be among the world’s largest economies “with the appropriate policies and institutions”.

For SA too, in a world economy that is not going to bail it out, the message is to fix its own economy sooner rather than later.

LOAD-SHEDDING IS THE NUB OF IT. WITHOUT LOAD-SHEDDING THE ECONOMY COULD GROW AT 2.3% THIS YEAR

SA COULD GROW FASTER THAN THE REST OF THE WORLD IF IT JUST GOT ITS ACT TOGETHER AND FIXED ITS ELECTRICITY AND TRAINS