Higher gold and metal prices could offset — to some extent — the effects on SA of a higher oil price due to the Russian war against Ukraine, according to Nedbank senior economist Nicky Weimar.
Historically the gold price has risen when oil prices rise due to risk factors, especially geopolitical risk, Weimar said at a webinar on the future prospects for the SA economy. And already strong demand for SA commodities could increase further due to sanctions against Russian output.
The gold price has risen from $1,904.13 on February 24 — the day of the Russian invasion — to $1,933.17 at about midday on Thursday.
An oil embargo against Russia has not been introduced yet but already the oil price is well over $110 a barrel on speculation and this will feed into higher inflation, higher interest rates and a high dollar.
Russia and Ukraine are major exporters of wheat but SA would be protected from that to some extent, as it grows its own wheat and could benefit from a higher world price if it had a good wheat crop, Weimar said, though prices might rise and that would negatively affect demand.
SA would be affected if there is an embargo on Russian oil as that would feed through to EU growth and demand for SA exports.
Weimar was scathing about SA’s position on the Russian invasion of Ukraine (it abstained in the UN General Assembly vote condemning Russia), saying that SA should politically align itself with countries that made a difference to its economy. Russia was “puny” in terms of SA’s trade links with its major trading partners, being the US followed by China and the EU.
“Russia is very tiny in our lives, which makes it very surprising that we managed to go against the global momentum and abstain from that vote in the UN. Russia makes no meaningful difference to our economy. Only 0.4% of our exports go to Russia and 0.2% of our imports. They are nothing. We have to side with countries that make a difference to our economy and where we can get the maximum benefit,” Weimar said. She believed SA would be forced to implement the sanctions against Russia.
Forecasting
She said she anticipated economic growth for SA of 1.7% in 2022 followed by 1.8% in 2023 and 1.2% in 2024, and inflation at 5.4% in 2022.
Consumer spending — the biggest contributor to GDP and a key driver of economic growth — had rebounded and was almost at pre-Covid-19-pandemic levels. Consumer spending was expected to grow 2.2% in 2022, slowing down in 2024 and 2025.
Employment growth in the private sector would be modest, reaching 2019 levels in 2024 and there would be strong growth in real wages, which would contribute to consumer spending growth. Fixed investment would grow 3.4% in 2022 but would only reach 2019 levels in 2024 or 2025.
A lot of employment growth would come from the recovery of labour-intensive industries such as travel, tourism, hospitality and food services, which were most severely affected by the Covid-19 lockdown regulations. “There is a lot of upside here,” Weimar said.
Government expenditure was not expected to be a major driver of economic growth in view of the projected expenditure cuts.
Weimar said she believed the worst in the trend of fixed investment had passed, and forecast it to grow 3.4% in 2022 — the first increase in more than six years — and grow by similar levels in the years ahead. But it would only get back to 2019’s levels in 2024 or 2025, she said. Export growth would slow as global growth dropped and imports increased as oil prices rose.
In her forecasting, Weimar assumed that there would be more Covid-19 outbreaks but without severe and disruptive lockdowns, and that there would not be a repeat of the devastating looting and destruction in July, which hit economic growth in the third quarter of 2021.
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