South Africa’s economy to grow (at least) 4% by yearend, says FMF economist

South Africa’s economy will grow by four percent or more by the end of 2015, according to Free Market Foundation (FMF) economist Loane Sharpe.

“My reading is entirely related to what’s happening in the international economy,” says Sharpe.

Tailwinds from the rest of the world

The US economy is accelerating and money supply – a great early indicator of future growth – is rising rapidly. In Europe there are early signs that quantitative easing is going to improve economic performance in, especially, Germany. China and India – huge exporters to the developed world – will benefit greatly should the economies of the US and Europe start taking off.

The world is awash in money to invest; corporations are sitting on R1-trillion. “They will pour this into the economy at the first signs of growth,” says Sharpe.

A bumper maize harvest + improving commodity prices = economic boom

“About 72 percent of our exports consist of agricultural and mining products,” says Sharpe. “If we look at commodity prices, and the historical relationship with the aforementioned economies, I think we’re going to see one of the best 'export harvests' we've seen in 20 years. In other words, the prices of the metals and farmed products we produce are going to start rising.”

Sharpe says this will improve South Africa’s terms of trade which will support the rand and might lead to lower interest rates. “In this way improvements in agriculture and mining will get propagated to the rest of the economy.

“The last time we had this uniquely positive confluence of events the economy went from shrinking 1.5 percent per year to growing 4.5 percent per year within seven months,” says Sharpe.

Factors that make Sharpe’s forecast hard to swallow:

  • Last week HSBC cut its growth forecast for South Africa from two percent to 1.6 percent.

  • This follows cuts in the forecast for growth by the South African Reserve Bank to 2.2 percent from 2.5 percent.

  • There are threats of drought in South Africa’s major maize producing regions.

  • South Africa faces an extreme shortage of electricity.

  • South Africa is on the verge of a water crisis.

“I’m not worried about Eskom,” says Sharpe. “It affects only a very small proportion of the manufacturing sector. The South African economy has modernised to such an extent that finance, retail, wholesale and transport have become far more important to the economy. These sectors don’t depend so much on electricity supply.

“Once commodity prices start lifting the business mood will start to improve and my predictions won’t seem so contrarian,” says Sharpe. “Commodity prices are the salve that’ll soothe all our anxieties.”

Listen to the audio for more detail.

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