US economy expected to grow 1.5% this year

Economists have projected
continued positive economic
growth for the US economy
as the job market strengthens
and consumer household
spending continues to grow in
the world’s
largest
economy.
This
represents
a doublededged
sword for
trading
partner
South
Africa that
would be
likely to
benefit
from higher consumer demand
and exports to the US but also
negatively impacted with other
emerging market currencies
if the Federal Reserve decides
to raise interest rates in
December as expected.
Christie Viljoen, senior
economist with KPMG, said
the US economy was expected
to grow by 1.5% this year and
by just over 2% towards 2020,
while inflation was below 2%
year on year. According to the
Washington-based Bureau
of Economic Analysis (BEA),
the leading contributors to
economic growth in the US
at present are construction,
health care and
retail trade.
“Positive
economic
growth in the US
economy, coupled
with a weaker
rand and softer
growth in China,
is expected to
boost exports
to the US this
year. The US
Federal Reserve
said during
September that the
country’s labour market was
strengthening and household
spending had been growing
strongly this year, though fixed
investment by businesses had
remained soft,” Viljoen said.
“A stronger US economy will
allow the Federal Reserve to
increase its interest rates, with
a hike expected in December
this year. Higher rates in the
US make investing money in
the world’s largest economy
more attractive from a yield
perspective. This would be bad
for the rand and the inflow
of money into the US would
strengthen the dollar and
weigh on
emerging
market
currencies.”
SA
exports
to the US
totalled
R78.5
billion,
while US
imports to
SA totalled
R76.4 billion
in 2015.
However, he said the
country’s port services
remained “quite expensive” in
a global context.
“The World Bank Doing
Business report ranks the
country 130 out of 189
countries for the time and cost
needed to clear a container
through sea ports. Companies
in the US are accustomed to
much better conditions – the
US is ranked 34 by the World
Bank for trading across
borders,” he said.
Viljoen added that the
Obama administration had
shown apprehension about
extending South Africa’s Agoa
status due to
the developed
nature of
the economy
compared
to other
countries on the
continent.
“I do not
think there are
at this stage any
guarantees that
South Africa
will qualify
beyond 2025.
South Africa’s industrial
sector is a large beneficiary of
the trade benefits associated
with Agoa. In a 2013 report,
trade and industrial policy
research organisation TIPS
found that without exports
under Agoa, the local vehicle
manufacturing sector’s export
volumes would be set back by
more than a decade,” he said.
INSERT & CAPTION
There are no
guarantees South
Africa will qualify for
Agoa beyond 2025.
– Christie Viljoen