The global economy looks poised to slow moderately from 3.8% in 2018 to 3.5% this year in Goldman Sachs Research’s view, led by deceleration in the US and further softening in China. But with growth still above potential in most developed economies, Goldman Sachs Research expects continued labor market tightening, gradually rising core inflation, and in many cases higher policy rates.
The economic recovery in advanced economies strengthened at the start of 2018. U.S. growth moderated toward the end of 2017, but still maintained a robust quarterly pace of 2.6 percent. Labor market conditions were strong in January 2018, with nonfarm payrolls rising by 200,000, the unemployment rate PMI to hit a 40-month high at the start of 2018. Momentum in the global goods trade continues. Despite moderating in the fourth quarter of 2017, the global goods trade continues to grow, supported by the recovery in manufacturing activity and investment. In 2017, growth in the global trade of goods averaged 4.3 percent, nearly three times the pace observed in 2016, and up from an average of 2.6 percent over the last five years. New manufacturing export orders in January indicate that this momentum will continue in 2018, remaining steady at a 17-year low of 4.1 percent, and average hourly earnings growth increasing to 2.9 percent (year-on-year), demonstrating the strongest annual gains since 2009. Growth in the Euro area moderated slightly to 2.3 percent in the last quarter of 2017, following a marked rebound in previous quarters. High-frequency indicators suggested a strong start to 2018, with the composite PMI nearly reaching a 12-year high in January. Growth in Japan slowed to 0.5 percent in the fourth quarter of 2017, down from 2.2 percent in the third quarter, but private consumption and exports strengthened, and industrial production remained firm toward the end of the year.
When looking at the South African economy, we can see that South Africa’s economic outlook has improved. A rise in confidence in early 2018 and the recent upward revision of national accounts for the period 2015 to 2017 suggest that the country is recovering from a difficult 2015 and 2016, which marked the end of the super-commodity cycle and severe drought. Gross domestic product (GDP) growth is projected to gather pace, increasing from 1.3 percent in 2017 to 1.4 percent in 2018, 1.8 percent in 2019, and 1.9 percent in 2020. This in turn would contribute to a broader rebound among commodity exporters, emerging markets and developing economies, and overall global growth. Although it provides little space for fiscal stimulus, the 2018 Budget Review’s reaffirmation of the government’s commitment to debt stabilization objectives is expected to generate more private investment.
Goldman Sachs expects South Africa’s economy to grow almost 3% next year, helped by President Cyril Ramaphosa’s reforms and strong global growth, the bank’s sub-Saharan Africa head told Reuters. Colin Coleman’s prediction is more optimistic than the view held by economists polled by Reuters at the end of 2018, who saw Africa’s most industrialised economy growing 1.7% in 2019 after sluggish growth of 0.8% last year.
“Part of the reason why Goldman Sachs is quite bullish on our ability to get back to 2.8% growth next year and 3.2% in 2020 is that the global backdrop is constructive. The two largest economies, USA and China, are doing well,” added Coleman, who heads Goldman’s Johannesburg office.
An inventory-driven recovery in the third quarter topped analysts’ estimates and ended the technical recession that blighted the economy through the first half of the year. In annualized terms, household spending staged a comeback following a value-added tax hike in the second quarter and appears to have also received a one-off boost from government employees’ back pay. Fixed investment, on the other hand, contracted sharply as firms’ plans were put off by the controversial land-reform debate. Despite a jump in exports, bolstered in part by greater automotive-related volumes, the external sector dragged on headline growth. Meanwhile, a supply-side breakdown revealed an industry- and agriculture-driven rebound in the quarter. Looking ahead to the remainder of the year, improved private-sector metrics through November could hint at a sorely-needed upturn in fixed investment. On the other hand, fiscal woes—compounded by weak growth prospects and rising debt-servicing costs—pushed two of the three credit-rating agencies to keep their junk-status views in recent weeks.
Tepid year-end growth prospects aside, Focus Economics analysts expect the economy to bounce back somewhat this year. Higher real wages and last-ditch fiscal stimulus are likely to lift economic sentiment ahead of this year’s elections and should serve to stoke household spending and fixed investment, respectively. Additional credit-rating downgrades will remain a key downside risk amid tense economic and political anxieties, however. Concerns over fiscal slippage and the inadequate pace of structural reforms are weighing on medium-term growth prospects. Focus Economics analysts expect growth of 1.6% in 2019, down 0.1 percentage points from last month’s forecast, and 1.9% in 2020.
Taking in account all the talk of a bounce back in 2019 and the end of the technical recession in 2018 it seems like the year is off to a promising start. When we tie this in with the almost daily increase of the online market place, it is clear that it’s a better time than ever to establish your businesses digital footprint and jump ahead of the market, ready to ride the wave of an improving financial term that waits in 2019.
Sources: Goldman Sachs, SOUTH AFRICA ECONOMIC UPDATE, Engineering News, Focus Economics.
