FNB says fragile economy recovering

A  South African macroeconomist expects the majority of industrialised economies to experience stabilisation of growth in 2013, but has warmed that challenges lie ahead as recovery is characterised by a weaker economic base.

Growth in developed economies is already getting strong as the US partially avoided falling off a fiscal cliff while China averted consequences of a hard landing in 2013. Not to be outdone, European economies appear to be committed to addressing fiscal debt crisis too. “Global growth is up-ticking and improving global retail sales are  increasing.

Global inflation will decline,” explained Sizwe Nxedlana, First National Bank (FNB) chief economist. He was presenting at an annual FNB Breakfast Review in Gaborone this week. The global economy is expected to stabilise at 3 percent in 2012 and upgrade marginally to 3.1 percent this year. Industrialised economies are expected to record a 1.0 percent growth, while emerging markets are forecast to grow by 5.4 percent in 2013, said Nxedlana.

The UK will stage a marginal recovery from a negative growth to 1.0 percent in 2013. The US avoided some worst consequences of the fiscal cliff last month but economists warn that spending cuts will still hurt the world’s biggest economy, which is projected to shed 1.5 percent of its GDP instead of a projected 3.5 percent growth.

Nxedlana growth projections run contrary to International Monetary Fund predictions that the Euro zone will remain in recession in 2013 and that global rebound remains fragile. Nxedlana argues that emerging economies benefitted from the Euro fiscal debt crisis as capital flows moved into South Africa, Argentina, Brazil, India and Russia.

He said South Africa recorded sterling R95 billion in capital inflows during the crisis. In his view, 2012 was characterised by subdued aggregate demand which led to a decline in consumer retail sales. “Producers responded by declining output,” said Nxedlana, adding that Chinese and South Korean exports also declined.

Much like Nxedlana, Accenture Managing Director, Bashi Galetsaloe struck a familiar optimistic chord when he said Botswana has a potential to take advantage of improving economic sentiments in the global economy. “Government is making carefully selected economic choices to make a difference,” he said. Galetsaloe attracted criticism when he said a historic 11.8 percent growth in non-mining sector means that Botswana has already achieved her economic diversification efforts.

However he faulted the country for what he termed lack of “capacity to execute at speed.” In his view, there is technology and resources to execute at speed. He proposes that the country can make history by becoming the world’s first green city. “The technology is there, we need to work hard and think,” noted Galetsaloe, who commended Minister Kenneth Matambo’ budget as “sexy, tall and slim.” At over P44 billion, Galetsaloe commended the government for “reining in expenditure.”

In 2012/13 budget expenditure remained at P42 billion. However Nxedlana said as stability reigns in the global economy, inflation will retreat to lower levels and banks will help stabilise liquidity in the market through quantitative easing. “Investors will be incentivised to look for more investment with higher returns,” he said.

Nxedlana said much like developing economies, Botswana may benefit from capital inflows into the country when investors seek less risky investments. “There is no reason that this will not continue,” said Nxedlana. A tax guru, Peter O’ Haloran agreed with Nxedlana that the position in developing economies is still fragile and that both challenges and opportunities lie ahead.

The tax czar commended Matambo for a “conservative and well disciplined budget” which is focused on job creation. The managing director of Botswana Trust Company piled credit on authorities explaining that government’s conservative tax policies encourage macroeconomic stability and certainty.

Despite challenges in subdued demand in diamond exports, Botswana economy continues to be the fastest growing economy in the SADC region and has for years attracted the name “Switzerland of Africa” thanks also to its macroeconomic stability. But O’ Haloran is of the view that red tape is undermining government efforts. “You can not activate the throttle and brake at the same time,” he said.

Last modified on Wednesday, 31 July 2013 16:29

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