JOHANNESBURG (miningweekly.com) – Commodity prices should remain relatively resilient in the medium term, Barclays Capital’s South African affiliate said on Thursday. But Absa Capital cautioned that any significant ‘downside correction’ to prices, as a result of the current global economic uncertainties, would seriously undermine growth prospects.

The bank had already revised its 2011 growth outlook for South Africa to 3.1%, from 3.9%, and had also trimmed its baseline outlook for 2012 to 3.4%, from 4.1%. Moreover, it cautioned that the downside risks to this new 'baseline' had increased materially.

Lead South Africa economist Gina Schoeman said higher commodity prices had propped up the South African economy during the first half of 2011, particularly in light of the fact that export volumes had not recovered strongly.

Higher prices for South Africa resources had also improved the country’s terms of trade, reflecting the fact that prices for products produced locally had appreciated more rapidly than prices for those products that South Africa imported.

In value terms, higher commodity prices lifted South African exports by 13.9% in the second quarter, while export volumes rose by a more modest 3.7%.

“Should we see any significant downside correction in global commodity prices, this economy will probably slump more than we currently expect,” Schoeman said.

Barclays Capital had also lowered it growth outlook for the US and Europe. And, crucially for commodities, it had also lowered its growth projections for China from well above 9%, to an “upper 8%” level.

Unlike some other economic commentators, it was not anticipating a “hard landing” in Chinese growth. But the bank’s macro and fixed-income research head Jeff Gable cautioned that should the outcome to the prevailing eurozone crisis be “disruptive”, growth rates globally, including in China, could weaken substantially.

“The risk in a disruptive environment is that growth [in China] becomes 5.5% or 6%, which is a long way away from [where growth is currently] and the implication for commodity markets will be very substantial,” Gable explained.

But he noted that, in a recent note to clients, Barclays Capital’s China research team had again asserted that the risk of a hard landing was “unlikely”.

“For South Africa . . . any substantial move downwards in commodities would have important implications,” he warned, noting that some commodities, such as copper, had already weakened.
 

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