IMF warns of global recession as inflation surges, with South Africa unlikely to escape
The International Monetary Fund has again cut its forecasts for global economic growth in the face of surging inflation. Indeed, it is a warning that a global recession may be imminent. If that transpires, South Africa’s economy can hardly escape a recession, given its many self-inflicted wounds.
The world’s Big Three economies — the US, the Eurozone and China — are in a mounting slag heap of trouble as inflation piles up and the result, according to the International Monetary Fund (IMF), may be a global recession.
“The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one,” Pierre-Olivier Gourinchas, the IMF’s economic counsellor, said on Tuesday.
“Under our baseline forecast, growth slows from last year’s 6.1% to 3.2% this year and 2.9% next year, downgrades of 0.4 and 0.7 percentage points from April. This reflects stalling growth in the world’s three largest economies — the United States, China and the [Eurozone] — with important consequences for the global outlook,” Gourinchas said.
The Washington-based lender had previously downgraded its forecasts in April, and it said its latest downgrade showed the jitters it expressed then were bearing bitter fruit.
“Many of the downside risks flagged in our April World Economic Outlook have begun to materialise. Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions. China’s slowdown has been worse than anticipated amid Covid-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine,” the IMF said. “As a result, global output contracted in the second quarter (Q2) of this year.”
South Africa’s economy, unsurprisingly, is widely believed to have contracted in Q2, with the Reserve Bank last week forecasting a shrinkage of 1.1%. Its forecast of 0.7% growth this quarter now looks optimistic and not just because it hiked interest rates by 75 basis points.
The US, the Eurozone and China collectively account for the majority of South Africa’s trade, and if they fall into recession, it is like a monstrous cement truck going off the road while it has a battered Toyota Tazz in tow.
China’s woes are already being felt as the prices for the commodities that South Africa blasts out of the ground and ships to the Asian giant slump. Anglo American Platinum and Kumba Iron Ore both this week reported sharply lower interim earnings, largely on prices that have cooled from record levels.
Meanwhile, South Africa has its own inflation demons to exorcise, with CPI in June hitting a 13-year high of 7.4% as food and fuel prices soar, hammering the poor and much of the middle class. Throw in industrial-level rolling blackouts, a governing ANC in a vulture-like war over the remaining spoils, volcanic eruptions of social unrest, a failing state, and collapsing consumer and business confidence, and it all adds up to a domestic recession mirroring the global one but with grotesque distortions.
For the record, a recession is at least two consecutive quarters of economic contraction. But the Big Three economies have plenty of padding. For one thing, they don’t have unemployment rates of higher than 34% — the US unemployment rate is an enviable 3.6% — and while there have been some power wobbles, they generally keep the lights on. And they don’t have the stark levels of income and wealth disparity that are prevalent in South Africa.
South Africa’s economy is in a different league of despair, and the IMF’s global forecast portends even more misery. DM/BM