Animal spirits are reviving abroad. According to a survey of economists by CNNMoney, China’s economy grew 7.7 percent last year, a faster pace than the government’s official target of 7.5 percent. And Barclays estimates that the US economy expanded 3.4 percent in the fourth quarter of last year.
Investec economist Kamilla Kaplan notes that the JPMorgan global manufacturing purchasing managers’ index is expanding at the fastest rate in nearly three years. And the Organisation for Economic Co-operation and Development’s composite leading indicator rose for the 14th consecutive month in November last year, according to Stanlib chief economist Kevin Lings, with growth firming in Japan, the US and the UK, which are among South Africa’s largest trading partners.
Even the celebrated forecaster known as Doctor Doom is sounding comparatively upbeat. Nouriel Roubini, writing on the website Businessinsider.com, predicted modest global economic growth this year and failed to forecast a catastrophe. He said the threat, for example, of a euro zone implosion, another government shutdown or debt-ceiling fight in the US, a hard landing in China, or a war between Israel and Iran over nuclear proliferation would be far more subdued. Businessinsider.com noted: “This is possibly the most optimistic we’ve seen Roubini in years.”
At home there are also positive signs. Last week Absa Capital economist Peter Worthington revised his fourth-quarter growth forecast to 3.3 percent from 2.4 percent, after news that retail sales rose a higher-than-expected 4.2 percent year on year in November. He said fourth-quarter growth in gross domestic product (GDP) was bound to be stronger than in quarter three, which was badly hit by strikes in the motor manufacturing sector. And he noted that in October mining output grew 7.4 percent month on month and manufacturing 6.9 percent, adjusted for seasonal factors, which is one of the reasons he boosted his GDP forecast.
He cited another factor: “Boom tourism, about which we have little hard data. My impression is that Cape Town is crawling with tourists in a way we haven’t seen for years.” For tourists, the exchange rate – the weakest since late 2008 – is an attraction.
Domestic exports should also benefit from a falling rand, as hard currency revenues translate into higher rand earnings and goods made by local manufacturers become more competitive on global markets.
But how much exports will benefit is open to question. South Africa repeatedly misses out on opportunities – including two commodity booms – and it could miss out again this year. Kaplan warns of “escalating operating costs, relatively low competitiveness and the possibility of disruptions to production induced by prolonged strike action”. Unless there is a steady supply of competitively priced exports, the negatives of a weak rand will outweigh the positives. The depreciating currency will start to feed into inflation, eroding company profits and eating into consumers’ spending power.
Moreover, as the US starts to taper its easy money policy, it is drawing capital away from emerging markets. For South Africa, export revenues will be critical this year as offshore capital flows falter. According to figures from Citi, non-residents last year bought just over R1 billion in local bonds and shares, after more than R6bn flowed out in December. This compares with purchases worth R83.8bn in 2012. Without funds from abroad, either from trade or investment, the economy won’t grow.
However, we can take a leaf out of Roubini’s book and be cautiously optimistic about the local outlook.