The Organisation for Economic Co-operation and Development (OECD) has warned that the challenging global outlook – with a recession forecast next year – has worsened domestic growth prospects for South Africa.
In its latest Economic Outlook released yesterday yesterday the OECD said the global economy was expected to slow further in the coming year as the massive and historic energy shock triggered by the Russia/Ukraine war continues to spur inflationary pressures.
The slowdown in global activity will hamper the demand for South Africa’s commodities, impacting negatively on the country’s current account.
Due to these global headwinds and others, the OECD lowered South Africa’s gross domestic product (GDP) slightly, saying the economy was now projected to grow by 1.7% in 2022, 1.1% in 2023, and 1.6% in 2024.
This is lower than the 1.9% GDP growth for 2022 forecast by the National Treasury and the SA Reserve Bank last month.
In August, the OECD had forecast GDP growth to slow to 1.8% in 2022 and 1.3% in 2023 after a rebound of almost 5% in 2021.
The Paris-based policy forum yesterday said growth in South Africa would continue to be driven by the recovery of private consumption and investment.
It said social transfers, better employment prospects and falling saving rates should sustain private consumption, although attenuated by high inflation and tighter financial conditions in 2023-24.
“Nonetheless, the price of South Africa’s commodity exports is expected to fall in 2023-24, leading to a deterioration in the terms of trade and the current account balance,” it said.
“Lower global growth will also weigh on exports in the near term. Downside risks to growth include electricity supply which will remain tight with a high risk of prolonged outages.
“Pushback against public-sector wage restraint and financially distressed state-owned enterprises are major fiscal risks.
“Additional tightening of global financial conditions and the potential volatility of capital flows are risks to the exchange rate.”
Meanwhile, the OECD further said that the world economy was expected to slow in 2023 led by Europe.
It said global economic growth was set to slow to 2.2% in 2023 from 3.1% this year, before accelerating to 2.7% in 2024.
It said that the world economy, especially Europe, was facing significant challenges, including the persistent high inflation levels, rising borrowing costs, energy supply shortages, and the ongoing war in Ukraine.
The Eurozone’s GDP growth is seen easing to only 0.5% in 2023 from 3.3% this year, with Germany's Russian-gas dependent economy contracting 0.3% next year while France and Italy growing just 0.6% and 0.2%, respectively.
Elsewhere, the OECD said the US economy should grow only 0.5% next year, compared to 1.8% in 2022; and China’s GDP should advance 4.6% after growing 3.3% this year amid shutdowns related to the pandemic and property market weakness.
According to the OECD, growth in 2023 is strongly dependent on the major Asian emerging market economies, who will account for close to three-quarters of global GDP growth next year.
Inflation is projected to remain high in the OECD area, at more than 9% this year, but it expected to gradually moderate to 6.6% in 2023 and 5.1% in 2024.
OECD Secretary-General Mathias Cormann said the global economy was facing serious headwinds.
“We are dealing with a major energy crisis and risks continue to be titled to the downside with lower global growth, high inflation, weak confidence and high levels of uncertainty making successful navigation of the economy out of this crisis and back toward a sustainable recovery very challenging,” Cormann said.
“An end to the war and a just peace for Ukraine would be the most impactful way to improve the global economic outlook right now.
“Until this happens, it is important that governments deploy both short- and medium-term policy measures to confront the crisis, to cushion its impact in the short term while building the foundations for a stronger and sustainable recovery.”