International Monetary Fund warns of even slower economic growth

The grim outlook for commodity prices is contained in an analysis in a chapter released yesterday for inclusion in the IMF’s World Economic Outlook, October 2015.

In its 2015 Budget Review, the Treasury said lower commodity prices, slow growth among major trading partners and volatility in global monetary policy and capital flows would directly affect South Africa over the next several years.

China’s August industrial profits dropped 8.8 percent from the same month past year, and January to August industry profits were down 1.9 percent.

Developed economies’ growth momentum continues, but is not strong enough to offset the slowdown we see in the emerging economies.

Crude futures are now down over 10 percent since the beginning of the month, and rating agency S&P cut its Brent and WTI forecasts late last week by USD 5 to USD 50 per barrel and USD 45 per barrel respectively for this year and said it saw 2016 prices at USD 55 for Brent and USD 50 for WTI.

Some economists argue that the overall impact of exchange rates on trade had been blunted by global supply chains, where inputs from many countries go into producing one final product.

South Africa is the top exporter of platinum, coal, iron ore, gold and other minerals.

“Global commodity prices have declined sharply over the past three years, and output growth has slowed considerably among commodity-exporting emerging market and developing economies”.

Other commodity-based countries such as Canada and Brazil are already in recession.

The RBA has cut the cash rate to a record low 2 per cent this year in bid to stoke investment and devalue the domestic currency to support non-resource exporters and import-exposed businesses.

The International Monetary Fund concludes that commodity-exporters generally are better equipped these days to weather cyclical downturns in export prices.

When prices and demand for those commodities weaken, output also slides, although in well-managed economies this level of activity is more sustainable.