The Paris-based Organisation for Economic Co-operation and Development (OECD) has revised lower its prediction for SA’s GDP and overall global growth forecasts as indicators point to stagnating output and falling consumer confidence, reaching levels last seen more than three decades ago.
The OECD downgraded SA’s GDP outlook for 2022 and 2023 to 1.7% and 1.1%, respectively.
It warned that major risks to the projections were on the downside.
The downgrade comes a week after one of the worst weeks of load-shedding on record, with stage 6 power outages. While Stats SA will release the high-frequency activity data for September only in the first half of November, the extent of the load-shedding would not only have weighed directly on electricity generation (which forms part of the GDP calculation) but also on sectors such as mining, manufacturing and agriculture, which are heavy users of electricity.
The OECD downgraded its forecasts for the global economy to “a modest” 3% in 2022 and 2.2% in 2023, well below the pace foreseen before the start of the war in Ukraine as uncertainty continues to surround world economies.
Speaking at the launch of the OECD economic outlook on Monday, secretary-general Mathias Cormann said households and firms across the globe are suffering as costs rise and purchasing power takes a hit.
He said that given the greater uncertainty likely to accompany energy supply disruptions, additional effects are likely to arise across the globe from a decline in confidence, higher financing costs for companies and supply chain bottlenecks.
Pessimistic
“For these reasons, the interim economic outlook we are presenting today is more pessimistic than the previous projections in June, which were already a material downgrade from the previous year,” Cormann said. “This challenging economic situation requires bold, well-designed and well co-ordinated policies.”
He added that taken together, the shocks of accelerating inflation, volatile currencies and falling confidence will push many countries into a full-year recession in 2023.
The rand weakened past R18/$ for the first time since the early days of the pandemic, extending its decline so far this year to nearly 12% and following in the footsteps of other emerging market currencies caught up in the dumping of assets perceived to be risky.
The rand was down 0.6% to R18.04/$ at 5.15pm on Monday, further taking a hit from the rolling blackouts at home.
The latest slide in the value of the SA currency comes just days after the Reserve Bank revised the inflation outlook down for the next two years even as it warned of upside risks to the outlook because of Russia’s invasion of Ukraine and expectations of inflation-beating wage settlements.
“Given upside inflation risks, we would certainly side with the Reserve Bank that [it] must continue to act resolutely to bring inflation back to its target band and to prevent the inflationary pressures from becoming entrenched and the de-anchoring of inflation expectations,” Cormann said.
“The first point to make is that stable prices are an absolutely crucial prerequisite for sustained economic growth.”
The OECD said additional monetary policy tightening is required to lower inflation. Even though fiscal support is needed to help cushion the effect of high energy costs on households and companies, it should be temporary and concentrated on the most vulnerable.
Cormann said the OECD provided recommendations on how issues facing SA could be tackled, “but of course it is a very challenging global economic environment for SA and all emerging economies.
“In terms of our advice to the SA government, we certainly would encourage them to focus on the quality of expenditure and also on efforts to fight corruption in public entities.”
Efficiency
He added that the SA government needs to improve the management of public procurement, which would help enhance the efficiency of public spending and reduce the weaknesses and exposure of the government to some of the risks that are undermining the growth potential.
OECD acting chief economist Alvaro Pereira said blackouts continues to be the main issue facing SA’s economy.
“We think that it is very important to continue the reform of state-owned entities and also to continue to be able to bring more electricity to the market. Increasing supply is crucial to avoid these blackouts that are basically hurting the SA economy,” Pereira said.
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