Eight years after the global financial crisis the world economy is expected to have its best year as broad based synchronised growth takes hold across the globe. Even SA is expected to deliver growth of around 1.5% vs. a dismal 2016, which saw GDP growth of only 0.3%.
South African consumers can look forward to some relief as inflation trends lower with interests expected to follow resulting in real wage growth and more disposable income. This is likely to improve confidence and credit growth both key drivers of consumption spending, which is 60% of our GDP growth. However, the global economy is facing unprecedented political risk.
Last year this time, South Africa seemed alone in scoring political “own goals”. Since then we have had Brexit, a coup in Turkey and a Trump presidency clouded in conspiracy theories. This year sees three major elections in Europe with France, Germany, and the Netherlands going to the polls. The most concerning is France, which has a serious contender in Marine Le Pen who has already made it known that should she win the election she will call a referendum on exiting the EU. So, expect to hear a lot more on Frexit, which I have just added to my spell-checker as a new word.
The Times listed an unpredictable Trump Presidency as the great risk facing the global economy, this is understandable given the nationalization / protectionist policy rhetoric and the fact that the US economy makes-up 25% of the global economy. The implementation of Brexit is likely to see a “hard” Brexit with the EU making an example of the UK to discourage any other member countries from getting similar ideas. By far the greatest risk though is Frexit, which is arguably the end of the EU as we know it with the resultant turmoil and uncertainty likely to derail any global economic recovery.
Back to SA politics, the current political stillness should not be mistaken for stability. The succession battle is raging on behind the scene and is likely to reach a crescendo as we approach the ANC elective conference by year-end. Zuma is literally fighting for his life to ensure a friendly president elect issues him a “get out of jail free card” come 2019.
The much spoken about Cabinet reshuffle is still very much on the cards with the knifes likely to come out for those Ministers who called for a vote of no confidence in Zuma. So, say good-bye to Derek Hanekom, Aaron Motsoaledi and Thulas Nxes. But the ultimate target is the Treasury with Deputy Minister Jonas likely to be the fall guy as a pre-emptive strike on Treasury. For now, Pravin Gordhan should be safe with the threat of a sovereign downgrade keeping the wolves at bay.
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