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Tough times may linger for commodities – Bureau for Economic Research

Tough times may linger for commodities – Bureau for Economic Research

Photo by Duane Daws

22nd October 2015

By: Kim Cloete

Creamer Media Correspondent

  

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Bureau for Economic Research (BER) senior economist Hugo Pienaar said on Thursday that he expected commodities to face the pinch for some time to come.

“We don’t think it is going to be a robust story for commodity prices any time soon. The global situation is not positive for South Africa,” he told a BER conference in Stellenbosch. This was despite the fall in the rand to record low levels.

Major producers were showing pessimistic numbers and price outlooks, although there was a window of hope come 2017.

“Our five-year outlook is that we will start to see moderate increases in commodity prices from 2017 onwards as the global economy starts to recover,” advised Pienaar.

Demand for coal, iron-ore and other commodities had weakened this year, in large part owing to China’s slowdown in growth. Pienaar noted that while growth was accelerating in the services sector in China, the Asian country’s industrial sector had slowed down.

This had hit South Africa hard, as well as oil-rich countries, such as Angola and Nigeria, while the US was also feeling the heat, with job-shedding in the domestic steel sector.

Countries in Africa were also contending with drought. Over the weekend, Zambians had a day of prayer for the weak economy and Zambia’s worst drought in 20 years. The country had all but dried up on its side of the Victoria Falls.

South Africa was facing a lower growth forecast, as outlined in the Medium-Term Budget Policy Statement by Finance Minister Nhlanhla Nene.

According to the BER, located at Stellenbosch University since 1944, five out of ten sectors in the South African economy were in negative territory, including agriculture and mining.

Pienaar said investors were also very concerned about the political environment in South Africa, with a record 80% of respondents in the manufacturing survey stating that this would constrain their ability to invest over the next 12 months.

“Government policies are impacting negatively on the real economy,” he warned.

The BER had forecast the rand to average R13.85 to the dollar in the fourth quarter of 2015, before weakening to an average of R14.35 in the fourth quarter of 2016. However, the bureau expected the rand to strengthen to R13.20 to the dollar in 2017. The BER also foresaw that the consumer price index (CPI) would remain largely unchanged, helped by lower fuel costs.

Pienaar was concerned with high wage increases. He said the government was sitting with a higher wage bill that had to be financed through contingencies or reserves. This meant underspending on other budget lines and, as such, he expected fixed investment to feel the impact. 

“Government has had to cut on the capital side because of the higher public-sector wage. We can’t afford these high wage increases. We have more important things to focus on,” Pienaar emphasised.

The BER forecast that producer price inflation would average 5.8% in 2016, CPI 6.2% and the nominal private sector wage hike 7%.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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