Windhoek
Weaker global growth, particularly by emerging markets, could lead to even lower commodity prices and as such could compromise the entire world’s growth and trade outlook. This is according to a presentation by South Africa during the recent Southern African Customs Union (SACU) Council of Ministers Retreat in South Africa.
South Africa noted that commodity prices posted their sharpest annual decline in 2015 from highs in 2011. These declines have been mainly driven by intensifying over-supply, deteriorating global growth outlook and the reorienting of the Chinese economy which has suppressed commodity demand. The decline in oil and iron ore prices was the most pronounced, while gold and coal prices have declined at a more modest pace.
The low commodity prices are affecting countries differently as revenues in resource-rich countries are
dropping and oil importers are benefiting from lower inflation as well as less pressure on current accounts. Meanwhile, the deterioration in risk sentiment towards emerging markets could result in weaker asset prices, currency depreciation and tighter financial conditions.
The presenters also emphasised that South Africa’s growth potential is currently weak and is estimated at around 1.5 to 2.0 percent. Mining and manufacturing production in that country performed weakly in quarter one of 2016. Despite improvement in April, forward looking manufacturing indicators suggest slowing growth while overall business confidence weakened in the second quarter of 2016.
Recent global growth forecasts have tended to be revised downward, while growth continues to underperform expectations. Expectations of a 2015 world growth were revised from 3.9 percent (in 2014), to 3.5 percent in (2015), against an estimated outcome of 3.1 percent. Large downward revisions on emerging market economies forecasts for 2016 and 2017 suggest growth trajectories significantly lower than previously anticipated.
Growth in world trade has slowed over the past three years as trade growth has remained below 3.5 percent since 2012, from an average of about 8 percent between 2003 and 2007. The latest IMF projections suggest slow growth in world trade over the next three years which also implies fewer trade opportunities for SACU with the rest of the world.