The chances of South Africa heading into a recession have almost doubled since January, due to the prolonged Russian war in Ukraine that ushered in a new era of volatility. The beginning of the year saw the global economy rebounding to new highs, equity markets soaring and consumer spending recovering. Higher inflation was initially considered a short-term hiccup.
Higher inflation was initially considered a short-term hiccup. But then the outlook for the global economy made a drastic turn in March 2022, with soaring commodity prices dramatically weakening the global inflation outlook and affecting consumer confidence negatively, turning the markets more volatile.
Ackerman says despite the rebound in economic growth since the Covid-19 recession, more time and growth are necessary to get the economy back to pre-pandemic levels. Population growth is also not stagnating along with the economy, creating the additional challenge of record unemployment. However, now the agricultural sector must prepare for a tougher time into 2023, with higher oil, gas, and fertiliser costs and export growth will also be affected as the global economy wanes on the back of war, high inflation and monetary tightening, he says.Ackerman says he expects the rand to remain under pressure as the tailwinds from last year’s positive trade balance start to fade.
“South Africa is unlikely to see the growth it needs in the next two to three years. Inflation is on the high end of the South African Reserve Bank’s target range of 6%. Local inflation could exceed the target if we experience a supply shock in higher food and oil prices.” The European Central Bank believes Europe’s challenge is supply inflation and is taking a cautious approach, indicating that an imminent rate hike is unlikely. On the other side of the Atlantic, the US Federal Reserve is taking a more hawkish view on inflation, hiking interest rates and looking at significantly tightening monetary policy to curb record-high inflation.
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