The launch last week by
President Jacob Zuma of the
African Regional Centre of
the Brics New Development
Bank (NDB) in Johannesburg
heralds a positive new era.
It can’t however alter South
Africa’s dismal standing in the
consortium with GDP growth
at rock bottom.
Every member of the Brics
(Brazil, Russia, India, China,
South Africa) consortium will
outperform South Africa over
the next year, with analysts
predicting a tepid 1.3% growth
outlook for the country.
This sobering message
came through loud and
clear in a recent webinar
presented by UK-based BMI
Research where South Africa’s
uncertain policy environment
was blamed for “tempered
investment enthusiasm”.
“In the months ahead, we
expect economic growth to
be stagnant. Performance
in the key mining sector will
likely begin to falter, and
continued uncertainty over
the direction of policy and
left-leaning rhetoric by key
members of the ruling African
National Congress will temper
enthusiasm to invest,” said
economist Lisa Lewin.
Even Brazil is looking more
positive, according to the
research.
“Our overarching view is
that economic recovery in
Brazil will continue, despite the
volatile political backlog,” said
Lewin.
“A modest reform package is
likely to be passed by the end
of the year – and although the
scope of the reforms will be
modest, their passage should
buoy investor sentiment over
the coming quarters.
“Additionally, green shoots
are visible – exports are surging
largely thanks to strong
harvests, the labour market
is stabilising, and industrial
production and retail sales are
rebounding.”
Although full-year GDP
growth for 2017 is expected to
be weak at 0.4%, the prediction
is for a decent rebound to 1.7%
growth in 2018.
In Russia growth prospects
remained relatively dim, said
Lewin, but the forecast for
growth was 1.2% in 2017 and
1.6% in 2018.
“Souring foreign relations
are expected to compound
the weak recovery but on
the positive side the Central
Bank of Russia’s relatively
hawkish stance has bolstered
its credibility and helped drive
inflation down to below the 4%
target.”
The subdued outlook for
oil prices and production
growth – and minimal
progress in enacting
structural reforms – are
all issues of concern for the
economy. “Areas that have
been neglected include
reducing the role of the state
in the economy, tackling
corruption and encouraging
private investment.”
India, however, is a more
positive story.
“We’re upbeat on India,”
said Lewin, “forecasting
growth of just under 7%
for the current fiscal year.
Growth has been flagging a
bit lately but we expect the
export manufacturing and
services sectors to recover.
“Manufacturing business
has remained upbeat on
growth and we expect
foreign manufacturers to
ramp up manufacturing
operations in the country.”
Looking at the broader
growth picture, she said
youthful demographics and
trade integration should
provide further tailwinds,
resulting in economic
outperformance versus
emerging market peers.
Commenting on China,
Lewin said they had been
surprised by how well the
economy had performed in
recent months – although
growth was expected to slow in
coming months.
“The focus on risk
prevention will result in a
slowing of credit growth and
a slowing down of the wider
economy. Other concerns for
China’s policy makers range
from trade relations with the
US to the aging population
and declining global
competitiveness in terms of
wages, all of which will further
weigh on growth.”
But on a positive note, the
‘Belt and road initiative’ is
expected to provide a major
boost for China’s economic and
political ties to more than 65
countries.
Chinese policymakers face a
difficult balancing act as they
look to control financial risks
while also trying to ensure that
growth doesn’t fall too rapidly.
“If there is policy misstep and
a slowdown in growth this
would weigh heavily on global
commodity markets and hence
emerging market growth in
assets,” she said.
Still low interest rates in
developed countries were
encouraging investment flows
into emerging markets which
offered attractive yields, she
added. “If that changes and,
for example, the US Fed hiked
rates faster than anticipated
it would reduce the relative
attractiveness of emerging
markets, triggering capital
outflows rather than inflows.
“Protectionism has also
been creeping up and could
accelerate – particularly in the
US – and global supply chains
that encompass emerging
markets could be disrupted in
a bid to bring back jobs.”
