A view to 2023 points to more economic trouble

Article tags AfricaBusinessEconomyPoliticsGlobalSouth Africa

By Sam Rolland, Sub-Saharan Africa director

Much of my time in the last quarter of this year at the Johannesburg EICN has been taken up with member briefings, with a focus on the outlook for 2023 and what strategies should be looked at for building resilience and growing in what may turn out to be a tough year for business. As the end of the year approaches, I thought it would be good to look at our latest EIU Global Outlook views released earlier this week, and ultimately what it may mean for South Africa. Below represents some of the key trends for next year:

The war in Ukraine will keep a floor under global energy prices

2022 saw a peak in global commodity prices, and this will be expected to continue with oil forecast to remain above US$90/barrel until the middle of 2023. Supply chain constraints are also expected to keep the price elevated around US$85/barrel into the next few years. Sanctions on seaborne Russian oil imports will continue to put pressure on the update, and European gas prices are only expected to ease over time during 2023-24.

The war in Ukraine is putting further strain on supply chains

As the war has dragged on and sanctions continue to disrupt financial channels through which to conduct trade with Russia, the disruption of Ukrainian port infrastructure (among others) will contribute to strained supply chains that first appeared during covid-19. Diversification of supply chains should continue, even beyond these disruptions normalising at the end of 2023.

Aggressive monetary tightening will continue into early 2023

Rampant inflation is expected to ease to around 6.5% globally in 2023, from around 9.4% expected this year, and a 6-year high. The factors mentioned in this report are all major contributors, but a slowdown in commodity prices will be the major clue that inflation is subsiding. Central banks globally will continue to drive aggressive rate hikes (comments from US Fed President James Bullard this week have suggested that rate hikes will not subside in the near future), even as a global recession begins to take effect.

Several major economies will register a recession in late 2022-early 2023

Speaking of central bank tightening, with the continued pace and magnitude of rate hikes the EIU expects the US to register a mild recession between the end of the year and early next year, as the rise in borrowing costs takes effect. Turning to Europe, gas rationing during the winter of 22/23, combined with a spike in electricity prices, will bring about full-year recessions in Germany, France, Italy, Spain, and the Netherlands in 2023. The region as a whole is expected to contract by around 0.3% next year. This will depend on the severity of the temperatures felt over the winter, and how countries are able to turn to alternative sources of energy.

China’s zero-covid policy is another drag on global growth

As I have mentioned in many of my briefings, China’s zero-covid policy remains a significant disruptor of strategic planning for executives. The EIU expects this policy to be maintained into 2023, although management of the virus should become more pragmatic. Just this week the Chinese politburo standing committee revealed the relaxation of some protocols, although at the same time expressed unwavering support for the zero-covid policy. Shutdowns of Chinese cities, production and logistics networks are likely to continue, particularly if new outbreaks of ovid-19 occur throughout the year.

The global economy will register only feeble growth next year

Global growth is expected to slow next year to around 1.5%. Food insecurity will continue to be a major factor for Africa, and as long as the war continues on in some shape or form, this will prolong economic difficulties. Compounding this with extreme weather events places much of Africa at heightened risk of unrest, a risk which may extend into 2025.

What this means for South Africa

2022 has seen a tough year on the domestic front, and electricity supply issues will undoubtedly remain the biggest drag on growth the country is likely to face next year. However, that supply chain disruptions will continue in various forms will force businesses to accelerate measures to ensure inventory continuity. One of the options brought forward was increased use of warehousing to protect critical goods to business operations- more attention should be paid to incorporating this into longer-term business strategies, particularly as it appears the Ukraine war will run longer than expected. For those in consumer-facing businesses, the South African Reserve Bank will be forced to keep track with US rate hikes (potentially not to the same degree), suggesting more pain for the local consumer. In the face of this, customer loyalty strategies will need to take centre stage, focusing on easing uncertainty over living costs.

Thu, 24th Nov 2022 Article tags AfricaBusinessEconomyPoliticsGlobalSouth Africa