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The SA Daily 16 October 2019

Global growth going nowhere

  • The IMF has again trimmed global GDP growth — to an average of 3.0% for 2019, after 3.8% in 2017 and 3.6% in 2018.
  • This synchronised global growth slowdown is due to several factors such as rising trade barriers; global trade and geopolitical uncertainty; idiosyncratic factors in several emerging markets; and structurally low productivity growth as well as aging demographics in advanced economies.
  • 2020 should however see a modest recovery to 3.4% — but the IMF has cautioned that such global growth won’t be broad-based. Per the IMF, was it not for the recent global monetary policy easing, global growth might be lower by 0.5 percentage points in both 2019 and 2020. Indeed, though monetary policy easing in both advanced economies and emerging markets has cushioned global growth from the impact of the factors mentioned above, the US-China trade war could still cumulatively reduce the level of global GDP by 0.8% in 2020.
  • These persistent downward revisions to global growth bode ill for emerging market currencies and commodity currencies. Nonetheless, though the rand remains vulnerable, we see it at R14.50/$ by end-2019 and R14.00/$ by end-2020, premised on no negative rating action by Moody’s, a credible turnaround plan for Eskom, and no further deterioration in SA’s fiscus. The IMF now forecasts SA GDP growth at 0.7% (our forecast is 0.5%) for 2019 and 1.1% (our forecast is 1.3%) for 2020.

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