Global trade costs have risen this month, while South Africa awaited a decision on African Growth and Opportunity Act (Agoa), Investec chief economist Annabel Bishop said in a trade note.
This was after after 2023’s slowing, and supply chain capacity had already seen a high level of underutilisation, although some container freight rates recently rose substantially as geopolitical tensions escalate.
“A slowdown in global trade growth in 2024 would contribute to the weaker outcome for global growth this year, with the escalation in the Red Sea conflict (particularly Iranian backed groups and the US) a downside risks to an already weaker outlook,” she said.
The latest data in the JP Morgan Global Manufacturing PMI survey saw a further fall in production in December, the seventh month in a row, as new business fell further, for the 18th month, and the pace of contraction overall quickened.
Bishop said inflationary concerns had also risen over the jump up in container freight to Europe on the attacks in the Red Sea’s Bab al-Mandab Strait by Yemen’s Houthi faction, lifting global risk aversion, strengthening the US dollar, and so weakening the rand.
Agoa is set to expire on September 2025.
South Africa is on the list of eligible countries for a ten year extension, but geopolitical tensions have raised concerns over the potential for it to actually gain renewal, given its stance towards some of the US’s adversaries.
Bishop said, “Loss of free trade benefits mean SA’s exports would cost more in the US, which would reduce their competitiveness, in turn negatively impacting demand for these exported goods, weakening the trade balance and so the rand.”
Loss of benefits would also cause a severe underpin of weakness to the domestic currency, as well as damaging economic growth further, she added.