The World Bank has warned of a potential fall in the global economy’s growth to its lowest in three decades over the remaining years of the 2020s. This is bad news for SA, whose economy has been stuck on a low-growth trajectory for more than a decade and where governance is weak in terms of both finances and human capabilities.
Although SA’s economic growth rate has long stopped tracking global growth, the vibrancy of the global economy still matters. The small SA economy is highly dependent on global markets for sustenance, particularly for the export of mineral and agricultural products and access to finance.
The World Bank’s warning comes as the major economies have been raising interest rates to stem the inflation tide. At the same time, government budgets have been squeezed because of increased debt levels, partly driven by the need to provide support to economies during the Covid-19 pandemic. SA has also been raising interest rates and trimming public expenditure — the latter meaning the government won’t have much financial muscle to cushion the economy.
As countries dealt with the aftermath of the Covid-19 pandemic and runaway inflation a persistent decline in long-term growth prospects was “brewing quietly”, according to a new World Bank publication, “Falling Long-term Growth Prospects: Trends, Expectations, and Policies”. “Across the world a structural growth slowdown is under way: at current trends, the potential growth rate — the maximum rate at which an economy can grow without igniting inflation — is expected to fall to a three-decade low over the remainder of the 2020s.”
The bank says all the drivers of global growth and prosperity since the early 1990s have weakened, “not solely because of a series of shocks to the global economy” over the past three years. It warns that a persistent and broad-based decline in long-term growth prospects “imperils the ability of emerging markets and developing economies” to reduce poverty, deal with climate change and meet their other development goals.
The weakness in global growth could be even more pronounced, the bank says, if any of the major economies were to have a financial crisis, especially if it were to trigger a global recession. As the past two decades have shown, financial crises and recessions leave deep economic craters.
“It will take a herculean collective policy effort to restore growth in the next decade to the average of the previous one … At the global level, given the cross-border nature of many challenges confronting growth, the policy response requires stronger co-operation, larger financing, and re-energised push for mobilisation of private capital.”
This is bad news for a country like SA, which is barely managing to tackle the constraints that have slowed the economy, which were neatly summarised in the March 2023 Quarterly Bulletin published by the Reserve Bank. The economy has experienced “significant supply constraints over the past decade”, it said, including severe and ever intensifying disruptions to electricity supplies and “a gradual deterioration” in rail infrastructure.
The electricity supply problem has two causes: the long delays in the completion of Medupi and Kusile power stations and the recurring collapse of the aged power stations. These two factors have outweighed the addition of renewable energy to the national grid. As the bulletin notes, the price of electricity has increased 241% since December 2009, far outstripping the rise in the consumer price index (92.8%) over the same period.
“The rapidly rising cost and unreliable availability of electricity in SA has become a growing constraint to output growth in the domestic economy,” the bulletin said. And according to the Bank’s monetary policy committee, the power shortages and poor rail network will shave two percentage points off SA’s economic growth in 2023.
The World Bank’s warning comes at a time when the SA economy is not only hobbled by domestic constraints, but government is at its weakest, a point made sharply by Bank governor Lesetja Kganyago last September. “Much as I wish we had a strong state that could deliver high-quality public goods at reasonable prices, the facts reflect otherwise. Relative to the 2000s we have a weaker state, spending a larger share of GDP. The result is an economy barely capable of growth faster than 1%, with a shrinking tax base and a weak outlook.”
When you add to that a slowdown in global economic growth, especially of the kind the World Bank is warning about, you can only conclude that SA’s socioeconomic prospects are bleak.
• Sikhakhane, a former spokesman for the finance minister, National Treasury and Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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