In my final column of 2022 I made the point that 2023 could be a difficult year for global growth, that this is typically treacherous territory for economies to traverse, and that SA should avoid scoring own goals. This year started with the most intense rolling blackouts in our economy’s history. It seems own-goal scoring remains the national strategy for now.
Even without the load-shedding catastrophe, 2023 was going to be a difficult year. Tighter domestic monetary policy will most certainly be a drag on domestic demand. The Reserve Bank hiked rates 3.5 percentage points to 7% last year, and the effect of these hikes will continue to feed into the economy over the course of 2023.
The outlook for the global economy, though buoyed somewhat by China’s reopening and progrowth policies, remains precarious, which removes a key anchor for domestic activity. In this context electricity shortages serve only to make a bad situation worse.
Bloomberg reports that economists it surveyed put the probability of a recession in SA at 45%. Economists typically adjust their expectations gradually, so I expect this probability will continue to increase as the year progresses. In November the Bank forecast that GDP would grow 1.1% in real terms in 2023, reflecting a adverse revision from the 1.4% it had forecast just two months earlier.
I suspect the new forecasts, which will be released when the repo rate decision is announced later in January, will reflect a further adverse revision. Over time the view that we are running an almost even chance of a recession in 2023 will change to an expectation that a recession is most likely to occur.
If, as I expect, a weak global economy coincides with a domestic recession, the temptation will be to link the two and blame global factors for the local malaise. SA is an open economy so adverse developments in the global economy will definitely affect the domestic economy. However, beyond a certain point domestic factors become the dominant causes of a country’s misery. In my opinion SA is now mostly to blame for its own economic ills.
If a ship in good condition with the right crew is caught in a storm it is better able to ride out the storm, repair and reorient once the storm passes. A ship in disrepair with an inadequate crew will suffer worse damage and limp unrepaired and weaker still into the next. For a few years now the SA economy has been that ship. The country is sailing into each storm weaker than it had gone into the last, is emerging more damaged after each pummelling, and is unable to put itself to rights before the next catastrophe.
This is the point at which one would suggest potential remedies for this painful cycle. From what I have seen this country is awash with good ideas and plans. Across all the key areas of weakness, including energy policy, industry policy, safety and security, education, health care, social welfare, local government, the macro economy and others, there is a glut of advice available to policymakers, much of which is ignored. The situation is disheartening to say the least, and we continue to wait for enthusiastic reforms across all spheres of government.
From an investor’s perspective I expect asset allocations will remain risk averse. In the past five years we have seen increased allocations into cash and income products, and this should continue in 2023. This is reflective of an economy that is not growing and of the resultant shortage of assets with reasonable risk-return profiles.
The already high allocation to offshore assets is also likely to increase, especially if the dollar softens as many expect this year. To say things cannot carry on this way is trite, but stage six load-shedding leaves one with too little creativity to speak in anything but clichés. May we all survive 2023.
• Lijane is a macro strategist.
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