The slowdown in China‘s economy — the largest consumer of commodities and a key global manufacturing hub — will lead to a slowdown in demand for SA’s commodity exports.
In addition to the war, frequent and wider-ranging lockdowns in China — including in the country’s key manufacturing hubs — have also slowed activity, causing new bottlenecks in global supply chains.
Nedbank senior strategy analyst Walter de Wet told Business Day on Thursday that as a result of these new bottlenecks in global supply chains, SA is not able to import all the goods it needs from China because lockdown measures in China are curbing production.
“This will have a knock-on effect on SA’s domestic production, potentially further slowing growth and putting upward pressure on domestic prices,” he said.
De Wet said that when the Covid-19 related restrictions begin to coincide with oil prices — which continue to remain sticky — SA’s large trade surplus will come under pressure, negatively affecting the country’s terms-of-trade and economic growth. He said the situation will also remove some of the support the rand recently experienced from the commodity boost.
On Wednesday evening, the World Bank warned that China’s slow growth, caused mainly by the country’s stringent Covid-19 lockdowns, could be a disaster for the global economy.
Speaking at a virtual 2022 Spring Meetings press conference, World Bank group president David Malpass said China’s Covid-19 related shutdown is part of the reason the Bank, and the IMF, revised downwards their world economic outlook for 2022 this week.
The World Bank cut its 2022 global economic growth forecast to 3.2%, from 4.1%. The IMF also cut its global economic forecast to 3.6%, down 0.8 percentage points since the fund’s January projections and 1.3 percentage points lower than six months ago.
A small, open, commodity exporting economy like SA does not do well when global demand is weak. SA runs a trade surplus with China.
China is SA’s single largest trading partner — if one counts EU countries separately — taking 11% of SA exports in 2021.
According to Bloomberg data, SA’s exports to China totalled $32.7bn in 2021, more than double the exports to the US which was in second place at $15.7bn and Germany in third at $12.16bn. China is also a large source of imports for SA. Imports from China totalled $20.3bn in 2021, with Germany in second place at $8bn and the US in third at $6.9bn.
Jee-A van der Linde, economist at Oxford Economics Africa, told Business Day that a slowdown in China means demand for SA commodities in general could slow, resulting not only in lower export volumes but also lower export prices.
Absa senior economist Peter Worthington said a slowdown in Chinese growth will reduce SA’s export volumes of industrial commodities, iron ore in particular, and means softer global prices for our commodity exports in general. The restrictions will also raise supply-side driven inflationary pressures.
In a note, Alexander Forbes chief economist Isaah Mhlanga said the risks to the inflation outlook remain on the upside driven by the ongoing Ukraine war and new supply bottlenecks from China’s Covid-19 outbreak. He said the country’s monetary policy will continue normalising as inflation risks remain on the upside.
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