While our neighbouring countries have had a
renaissance in political leadership, and we’ve seen how they are going to be
tackling their problems going forward, we ourselves are still waiting on
Minister Schlettwein’s Budget speech to see where we will head in the coming
year. While we wait, it should perhaps behove us to examine where everyone else
seems to be headed. As usual, the World Economic Studies Division of the
Research Department at the International Monetary Fund in Washington DC can
help us on that front. During January, they release an update to their World
Economic Outlook to give us a glimpse into what might lie ahead.
So what does the January 2018 report
reveal? Well, global economic activity continues to firm up, with 2017 growth
expected to be 3.7%, up by 0.1% since their last report in October. As a
result, growth for 2018 has been adjusted 0.2% upwards, to 3.9%. This is as a
result of increased growth momentum, and also the expected impact of US tax policy
changes. In addition, global trade has grown strongly in the last few months
amongst the advanced economies, with increased manufacturing output seen from
Asia as new smartphones are released. The forecast, of course, expects that
favourable global financial conditions and market sentiment will maintain the
growth in demand going forward.
So let’s dig a bit deeper into the details,
starting with the so-termed ‘Advanced Economies.’ In the United States, growth
for 2017 was revised upward to 2.3% due to higher demand and the expected
impact of the tax reform as it stimulates investment and domestic demand for
imports. In the Euro area, growth for 2017 was also revised upwards to 2.4% for
2017 and 2.2% for 2018 reflecting their increased domestic demand as well as
increased exports. However, Spain sees its forecast for 2018 adjusted downwards
to 2.4% due to increased political uncertainty due to the Catalonia situation.
In the United Kingdom, growth for 2017 is
expected to remain at 1.7%, and growth for 2018 is set at 1.5 until the extent
of the country’s relationship with the euro area is finalised. Japan, however,
has seen its 2017 growth upgraded to 1.7% and that of 2018 to 1.2%, due to
expected stronger exports, but the country’s shrinking labour force continues
to curtail growth. Canada is also expected to benefit from increased demand
from the United States, with growth for 2017 projected at 3%, and 2018 at 2.3%.
Now let’s have a look at the Emerging
Market Economies. First amongst these is of course China, with growth of 6.8%
maintained in 2017, but revised upwards for 2018 to 6.6%, given the expected
increase in exports. In the rest of Asia, the economies are doing quite well too,
with India in particular picking up, with growth for 2017 expected to by 6.7%
before increasing to 7.4% in 2018, making it the country expected to grow the
fastest in 2018. It is telling that this region accounts for over half of the
world’s growth.
In Latin America and the Caribbean, GDP growth
has been revised upwards as well, expecting 1.3% now in 2017, and increasing to
1.9% in 2018. Mexico leads the way in
this region, as it benefits from expected increases in US demand, and Brazil’s
economic recovery continues to firm up substantially. The biggest issue in the
region is the continuing political uncertainty in Venezuela, which has seen
further downward revisions in its forecasts. In the Commonwealth of Independent
States (or Russia and the former USSR countries) conditions continue to
improve, with growth in 2017 revised upwards to 2.2%, and forecasted to remain
at 2.2% during 2018. This coincides with Russia emerging from its recession,
with expected growth of 1.8% in 2017, and 1.7% in 2018.
In developing Europe, growth has been
drastically upgraded to 5.2% in 2017, and 4% in 2018, driven by a recovery in
exports, led by Turkey which has adopted much more accommodative policies and
Poland, which expects easier financial conditions and export demand from the
euro area. In the Middle-East and North African region, however, growth remains
subdued, with projections downgrading them to 2.5% for 2017, and only picking
up to 3.6% in 2018. This is due to the fact that while oil prices may have
recovered somewhat, there are still hard fiscal adjustments that need to be
made before strong growth can once again prevail.
Finally, our own neck of the woods –
sub-Saharan Africa. By now we have good comparisons with the rest of the world
to show just how we’re doing. Well, the region as a whole has been upgraded to
2.7% growth in 2017, increasing to 3.3% in 2018. Nigeria saw a modest upgrade
to 0.8% in 2017, but is expected to make a recovery in 2018, growing at 2.1%.
South Africa, the region’s other large economy, is estimated to grow by 0.9% only
in 2017, with the same projected in 2018. Given the recent changes in political
leadership, we can expect that in a few months, as President Ramaphosa’s
changes settle down and give South Africa some reprieve from the continual
political uncertainty that hung like a cloud over its economy, these forecasts
might improve.
So what does this mean for us? When we take
a step back to see the whole world economy at a glance, we can see that no one
economy is without its challenges. But we can also see that every recession has
a solution, with quite a few countries pulling themselves up by their
bootstraps. We’ve been blessed with quite a few years of exceptional growth,
and it seems that 2017 can most likely be classified as a depression. We await
with bated breaths the new budget speech, to see what our course forward will
be. But I assure you, that if we work together, we can create a warm light for
all mankind to share.
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