The global forecast looks brighter than it did towards the end of last year. Back then, the consensus was that central banks, led by the Federal Reserve, would raise rates too high in their quest to kill inflation, destroying growth and plunging the global economy into recession for 2023. The proverbial “hard landing” was consensus. By January, it looked like the global economy was headed for a soft landing, and markets ran accordingly.
Recent US data shows both growth and inflation surprising on the upside. While this will see inflation and interest rates “higher for longer”, markets much prefer growth to recession. It will unfortunately keep the US dollar firmer which is less positive for emerging markets like South Africa.
From being almost certainly headed for recession, it is now predicted that the US might narrowly avoid a recession. If the US does have one, it should be milder than expected.
In the final quarter of last year, Europe was grappling with rocketing electricity and gas prices, as a result of the war in Ukraine, and was facing the very real prospect of load-shedding – possibly even an economic crisis.
Thanks to a much milder January than expected, the Europeans survived winter. They’ve also stored enough gas for this winter and next, thereby avoiding the anticipated economic crisis. Whilst the region still has a while to go in terms of rate hikes, the outlook is certainly better. This is important to us, as Europe is a major trading partner.
Similarly, the UK – predicted to be the only G7 country in recession this year – looks set for a milder than expected recession, with some now even saying it could end the year with flat to slightly positive growth.
China’s about-turn on its zero Covid policy will lead to Chinese growth rebounding, and that, coupled with some recovery in the housing market, has seen China moving from being declared by most of the developed world as “uninvestable” in the final quarter of 2022, to one of the most exciting markets for 2023.
All of the above should contribute to another year of outperformance for commodities. It should also ensure that emerging markets are the place to be this year as risk sentiment improves.
All of which is good news for South Africa. So why aren’t we excited?
Although 2023 should see better days for emerging markets and commodity currencies as they bask in the strength of a rebounding China and recovering world, these happy days may bypass South Africa altogether.
Back home, we are suffering a crisis of confidence, largely of our own making. Years of government neglect, corruption and general incompetence have left our state-owned enterprises on their knees and barely functioning.
Rolling “state of disasters” (and yes, there is an “s” on the end of that) may allow government quicker access to funds to fix electricity and infrastructure, but this also circumvents government spending protocols and poses the risk of a covid-style corruption feeding frenzy.
Ironically, the good news is that the problems have intensified to a point where the noise is impossible for government to ignore. And for the first time in our democracy, the ruling party is likely to be held accountable next year.
Whilst this accountability is important and should yield results, there’s a more than likely chance that the ANC will still be in power following elections next year. Recent polls put ANC support around 40%, but that is because people being polled today are currently bearing the brunt of the worst load-shedding in our history. There is no doubt that government will do anything to lessen load-shedding prior to elections, even if – according to analysts – it jeopardises the long-term health of the power stations involved.
So, while a reduction in load-shedding will be welcome, and should raise ANC support ahead of elections, the question remains, if the ANC gets less than 50%, with whom would it partner? A Ramaphosa ANC in coalition with a similarly aligned opposition party could be a great result for the country; however, an ANC alliance with a populist party could be disastrous.
So, this year, it’s up to government to decide if South Africa enjoys the macroeconomic tailwind blowing, or not. And it’s up to the ANC to decide if 2024 will be a celebration of 30 years of democracy (and in power) or sorrow at the polls.
