SA’s economy in 2014 and beyond
The BER says GDP growth will pick up in 2014 and beyond, but constraints remain.
The South African economy will grow by two percent in 2013. Growth is likely to pick up to 2.8 percent in 2014 and 3.5 percent in 2015, said Hugo Pienaar, senior economist at the Bureau for Economic Research (BER) on Friday.
"We've revised our 2013 figures downwards to reflect the impact of industrial action in the manufacturing and mining sectors," says Hugo. "We expect support from increased consumers spending in 2014, however, growth will be curtailed by a poor export performance."
The BER lists a number of constraints that are likely to keep GDP growth rates from rising above South Africa's long-term average of 3.5%. Chief amongst these are low productivity growth, a large current account deficit and the masking of structural problems due to the availability of cheap foreign financing.
Another major impediment to economic growth is and has been the flare-up of labour unrest. In 2008 there were 51 strikes in South Africa. This increased to 74 in 2010, dropped back to 67 in 2011 and then shot up to 99 in 2012.
These 99 strikes, of which more than half were unprotected, led to a loss of R6.3-billion in wages, representing 0.5% of South Africa's total consumer spend. Vehicle exports plummeted by 60%, further exacerbating the country's persistently large trade deficit.
Concerns around South Africa's electricity supply, as well as the impact of increased prices, says Pienaar, should moderate in 2014 as Medupi starts feeding into the grid.
The BER expects the rand to strengthen in 2014, while acknowledging that risks are firmly on the downside.
"Global growth should pick up, accompanied by reduced global risk aversion, somewhat higher commodity prices and potentially improved demand for South African produced goods and services," said Pienaar.
"Given these assumptions we expect the current account deficit to improve to 5.7% of GDP in 2014 from a projected 6.3% of GDP in 2013."
Hugo said he expects some cooling of the adversarial labour environment and, against this backdrop, expects the rand to strengthen to an average of R9.50/$ in the fourth quarter of 2014 from around R10/$ in the fourth quarter of 2013.
Although a narrowing of the current account deficit to 5.3 percent in 2015 should support the rand, the US Federal Reserve will by this time start thinking about raising interest rates, which will be detrimental to emerging market capital inflows. As a result, the BER forecasts the rand to revert to a weakening trend and average R10/$ in the fourth quarter of 2015.
Consumer price inflation will stay close to the upper target range of six percent throughout 2014, reflecting in part the lagged impact of previous currency weakness and persistent above inflation wage increases. A benign petrol and food price outlook should, to some degree, compensate for these factors.
The BER expects inflation to ease slightly to 5.7 percent year-on-year in 2014 from a projected 5.9% in 2013 while averaging 5.5 percent in 2015.
Further, it believes the South African Reserve Bank will keep interest rates unchanged throughout 2014, with the first hikes likely at the start of 2015.