South Africa’s economy is recovering steadily and should not head into a harsh upward interest rate cycle and recession in 2022. This is according to Investec economist Chris Holdsworth. Speaking at the annual conference of the Road Freight Association recently, he said the economy had already recovered to pre-Covid-19 levels two years ahead of what analysts had anticipated. Holdsworth said road freight volumes had also risen in line with increased economic activity, which had fuelled GDP growth. “There is no shortage of pessimism for the outlook of the South African economy, but we surprised [everyone] last year, relative to expectations, with our GDP growth of 2.1% – which means road trade volumes surprised by more than most other countries,” he said.This was because South Africa’s GDP growth drives road freight volumes. For every 1% growth in GDP, road freight volumes tend to increase by about 1.6% – which is a higher relative growth ratio than most other countries experience.He said while export volumes had not risen, the value of exports had grown to R400 billion, comprising 8% of GDP in 2021. He said this level of exports was high considering that Saudi Arabia, a huge exporter, had a figure of 9% t o G D P.“The last time we were exporting like this was in the late 1980s. The volumes are no different; it’s the price that happened to pick up. Mining companies are making a lot more money and the government is making more money in tax, which can result in tax cuts like we saw in February,” he said.According to Holdsworth, commodity prices were expected to remain elevated “for some time”, while WTI crude oil prices had “trended upwards” due to global economic growth and the war in Ukraine, which had pushed the price to $120 a barrel.“Fuel spend is about 4% of the consumer price index (CPI) basket and central banks hike rates because of higher fuel prices, which is what’s happening in South Africa and abroad. So, central banks hit consumers on both sides,” Holdsworth said.“This is a very problematic scenario for the global economy. If it persists, it will push some countries into recession or to very low levels of growth. “Fortunately, recovery is on its way. Land-based oil rigs in the US output are up by 300 000 barrels per day, and OPEC (the Organisation of the Petroleum Exporting Countries) is going to increase output by 650 000 barrels per day,” he said. Holdsworth said it was unlikely that the South African Reserve Bank would hike interest rates aggressively. He added that the economy would grow by an estimated 2.5% in 2022, although some analysts had predicted a recession.“It’s not likely. Expectations for South Africa are too low. We are not saying it is going to grow a lot, but by 2.5% to 3% – which means debt to GDP will be better than last year and road freight volumes will be better.”
