GDP gloom for world and SA

Tougher-than-expected conditions in emerging economies such as that of South Africa will force the International Monetary Fund to reduce its prediction of global growth later this week.

Analysts in South Africa are also reducing their expectations.

Nedbank economists believe that GDP will increase by "a modest" 2% this year, compared to 2.5% last year.

"The economic situation will probably remain fragile and uncertain throughout this year.

"Some improvement is expected in the second half of the year, but the chances of a strong rebound appear slim," said Busisiwe Radebe in Nedbank's Guide to the Economy, released on Friday.

"The uncertain outlook for the global economy will continue to hamper export performance and local conditions, such as increased costs, will continue to constrain growth," noted the report.

Concerns about the economic slowdown in China and its knock-on effects on other countries were shared by the IMF.

The IMF' s managing director, Christine Lagarde, yesterday said at an economists' conference in Aix-en-Provence, France, that the global economy's prospects this year looked bleaker than expected .

"We had a growth forecast of about 3.3%," Lagarde said, referring to the IMF's forecast for 2013.

"But I fear that, considering what we are seeing now, in emerging countries in particular - not developing countries and low-income countries, but emerging countries - I fear that we might be slightly below that."

Lagarde said the IMF would publish the data this week.

The IMF reduced its 2013 forecast for global growth from 3.5% to 3.3% in April.

South Africa could well be one of the emerging countries Lagarde is referring to.

In its World Economic Outlook, published in April, the IMF forecast GDP growth of 2.8% for this country this year. Both the Reserve Bank and the Treasury, and most economists, have since reined in their expectations. The Reserve Bank forecasts GDP growth of about 2.5% this year.

According to Radebe, consumers, the main drivers of the economy, are "more cautious of spending" because of their high indebtedness.

"Growth in consumer spending will probably continue to slow in 2013. Consumers' fortunes are linked to the country's economic outlook and that looks rather bleak at the moment," she said.

The disposable incomes of households will probably be curbed by the government's attempt to lessen its wage bill. Public sector employment and wage increases have in recent years helped to strengthen consumption.

"According to this year's budget review, the government aims to limit growth in its wage bill to 7.1% in this fiscal year and to 5.9% in the next.

"Even if these limits are not achieved and the government pushes through a higher wage bill, it is unlikely to reach the growth levels of, say, 19.3% and 17.7% recorded in 2009 and 2010 respectively."

As credit ratings agencies such as Moody's, Fitch, and Standard & Poor's scrutinise public spending, "the government might be highly motivated to contain its recurrent expenditure - more so than in the past".

Consumer debt, coupled with higher inflation, will probably hold growth in consumer spending back to about 2.8% in 2013, from 3.5% in 2012, according to Radebe. - Additional reporting by Reuters