Uncategorized 31.12.2013 09:00 am

SA facing a brave New Year

The two mainstays to any hopes that the economy will shoot the lights out this year are a global economic recovery and a weaker rand. Picture: Bloomberg.

The two mainstays to any hopes that the economy will shoot the lights out this year are a global economic recovery and a weaker rand. Picture: Bloomberg.

The things needed to boost our economic performance to long-run levels of 3.5%, or even the outperformance of 5% seen during 2004–2007, will not change quickly in our favour.

This doesn’t mean we don’t have the potential to surprise. But what could lift us out of the doldrums in 2014–2015?

Two things are a given. Other stuff needs work. Yet other stuff could trip us up.

What’s already baked into the cake? Global recovery and a weak rand. Between them, they should lift our trade gains.

The rich West’s game is slowly improving, mainly because fiscal headwinds are lessening as austerity drag anchors diminish. Private enterprise continues to reinvent and repair itself and rich wealth effects (rising asset markets) are increasingly supportive.

In addition, Japan is hyper-proactive with stimulatory policies, while China is holding its own.

All these bits and pieces together show evidence of a gradual acceleration in global demand, lifting confidence, and inviting further supply responses that boost growth apace.

This is one leg that can boost growth. Another leg is that a gradually accelerating global economy should stabilise commodity prices, at least in places.

Completing the picture is the substantial rerating of the rand already absorbed to date. At over 10:$, the rand is modestly undervalued, giving greater trade competitiveness to our producers.

The extent of rand undervaluation could still increase further in the coming year, partly for global reasons but more likely for domestic ones, thereby adding still further to our trade-adjustment driven growth.

Less of a disruptive labour environment would be an obvious area in which we could see immediate results in boosting the economy.

Unfortunately, this is also the one area of the economy fraught with deep political tensions.

Though industry arrangements have been made, in for instance mining, it is not obvious that this will prove adequate for what still awaits on this score. Also, other sectors may encounter union actions which may be challenging.

Another area begging for improved performance are supply side-constraints, especially electricity, road and rail infrastructure.

The upgrading of critical road infrastructure should already be felt, while expanded rail facilities may be a reality soon.

The biggest growth drawback at present is still electricity supply to industrial users, constraining their output and new fixed investment.

The good news is that the Medupi power station should start supplying electricity in stages from later in 2014, if the new completion schedules hold.

The bad news is that environmental regulations may lead to the premature decommissioning of Kriel power station next year, which would be an enormous blow.

Lastly, one would still like to see an accelerated rollout of our most critical infrastructure. What is needed is greater urgency in the public sector.

Too early to become too hopeful?

*Cees Bruggemans (economics@bruggemans.co.za) is an independent, consulting economist.

 

 

 

 

 

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