Forecasts for Sa’s economic growth rate have been dropping consistently in 2023, from 1.2% year on year at the start of the first quarter to 0.7% in March, 0.6% in April and now 0.4% in the outcome of the May survey (all Bloomberg). A more recent survey from Reuters in May places the outlook for economic growth even lower, at 0.2% for 2023. Market perceptions of the global outlook have also dimmed, with China’s economic recovery proving weaker than anticipated after its 2022 lockdowns, as recent production data disappoints, including that on household spending, investment and trade activity. Global trade defragmentation is also weakening sentiment, with risks of limitations on trade competitiveness growing. These concerns, along with US recession fears and disappointment over China’s ability to lead the global economy stronger in 2023, have weakened sentiment, reflecting in the recent fall in oil prices. Markets had expected a ramp-up in economic activity in China in the second quarter, but has also been affected by destocking amid slower sales as consumer demand weakened globally. The latest supply chain data on sea freight signals such a recent slowing in demand in its consumer goods shipments. The JPMorgan Global Manufacturing PMI shows “new orders continued to fall” in April on “a post-pandemic switch towards spending on services ... a preference for lower inventory holdings at clients” and still a “rising cost of living”. S&P Global Market Intelligence adds: “US seaborne imports of containerised freight fell by 15% year over year in April ... the ninth straight decline on that basis. As in previous months, consumer goods led the downturn with a drop of 24%). “All five of the major sectors that S&P Global Market Intelligence tracks ... experienced a decline. The slowest rate of decline was in capital goods, which in total fell by 1% thanks to a 21% improvement in shipments of electrical equipment.” Lower global demand has seen a drawdown on input (commodities, components and so on) “safety” stockpiles as inflation fears ease, with moderating inflationary pressures expected to persist in 2023, aiding, it is hoped, the occurrence of a soft-landing. April’s global supply chains were reported by the GEP global supply chain volatility index to have had spare capacity since June 2020 on almost a year of higher interest rates, destocking and subdued demand, the report highlights. Commodity prices consequently fell in the second quarter of 2023 cumulatively to date, after lifting in the first quarter by 7.2% quarter on quarter. The first two months of the second quarter of 2023 reversed the first quarter’s gains on worries over global growth. China’s huge absorption of commodities has a key influence on commodity prices. With its economic data prints in April tending to disappoint anticipated outcomes after the burst of activity in the first quarter, this weakened commodity prices in April. Besides slowing global demand, Sa’s exports have been afflicted by the deterioration in its factors of production (such as electricity supply, freight rail and port, water supply, road infrastructure). There has been a consequent weakening trend in the terms of trade over the past 12 months, adding to rand weakness, with an average trade balance for SA of -R1.7bn in the first quarter versus R20.9bn a year ago. (The number for the second quarter of 2023 was R23.7bn from R16.5bn a year earlier.) Load-shedding will not end in 2023 or 2024, even with the addition of Karpowership power (which is gas fired and estimated at 1,200MW), as the collapse in Eskom’s capacity is simply far too large, and likely to climb over winter. Eskom says its winter “outlook shows that with breakdowns or capacity unavailable due to unplanned maintenance at 15,000MW, load- shedding might be predominantly implemented at stage 5 for the winter period. Should breakdowns reach 16,500MW, load- shedding might be implemented at stage 6. If unplanned outage averages 18,000MW, load-shedding might be required every day and might be implemented up to stage 8.” A substantial number of private sector projects have already been bid in various windows, but the state’s bureaucracy needs to quicken the progress of these projects to closure in the regulatory process and so on to construction. Additionally, the state needs to allow the just energy transition funds available from the international community to be spent on building transmission infrastructure so solar and wind energy can be increasingly generated from the coast and the Cape provinces, with the existing infrastructure having instead been built to transmit electricity from the coal power stations in Mpumalanga and Limpopo to the national grid. Graphically illustrate using the AS/AD graph and explain the impact of lower global demand on South Africa’s growth rate and inflation rate.

Forecasts for Sa’s economic growth rate have been dropping consistently in 2023, from 1.2% year on year at the start of the first quarter to 0.7% in March, 0.6% in April and now 0.4% in the outcome of the May survey (all Bloomberg). A more recent survey from Reuters in May places the outlook for economic growth even lower, at 0.2% for 2023. Market perceptions of the global outlook have also dimmed, with China’s economic recovery proving weaker than anticipated after its 2022 lockdowns, as recent production data disappoints, including that on household spending, investment and trade activity. Global trade defragmentation is also weakening sentiment, with risks of limitations on trade competitiveness growing. These concerns, along with US recession fears and disappointment over China’s ability to lead the global economy stronger in 2023, have weakened sentiment, reflecting in the recent fall in oil prices. Markets had expected a ramp-up in economic activity in China in the second quarter, but has also been affected by destocking amid slower sales as consumer demand weakened globally. The latest supply chain data on sea freight signals such a recent slowing in demand in its consumer goods shipments. The JPMorgan Global Manufacturing PMI shows “new orders continued to fall” in April on “a post-pandemic switch towards spending on services ... a preference for lower inventory holdings at clients” and still a “rising cost of living”. S&P Global Market Intelligence adds: “US seaborne imports of containerised freight fell by 15% year over year in April ... the ninth straight decline on that basis. As in previous months, consumer goods led the downturn with a drop of 24%). “All five of the major sectors that S&P Global Market Intelligence tracks ... experienced a decline. The slowest rate of decline was in capital goods, which in total fell by 1% thanks to a 21% improvement in shipments of electrical equipment.” Lower global demand has seen a drawdown on input (commodities, components and so on) “safety” stockpiles as inflation fears ease, with moderating inflationary pressures expected to persist in 2023, aiding, it is hoped, the occurrence of a soft-landing. April’s global supply chains were reported by the GEP global supply chain volatility index to have had spare capacity since June 2020 on almost a year of higher interest rates, destocking and subdued demand, the report highlights. Commodity prices consequently fell in the second quarter of 2023 cumulatively to date, after lifting in the first quarter by 7.2% quarter on quarter. The first two months of the second quarter of 2023 reversed the first quarter’s gains on worries over global growth. China’s huge absorption of commodities has a key influence on commodity prices. With its economic data prints in April tending to disappoint anticipated outcomes after the burst of activity in the first quarter, this weakened commodity prices in April. Besides slowing global demand, Sa’s exports have been afflicted by the deterioration in its factors of production (such as electricity supply, freight rail and port, water supply, road infrastructure). There has been a consequent weakening trend in the terms of trade over the past 12 months, adding to rand weakness, with an average trade balance for SA of -R1.7bn in the first quarter versus R20.9bn a year ago. (The number for the second quarter of 2023 was R23.7bn from R16.5bn a year earlier.) Load-shedding will not end in 2023 or 2024, even with the addition of Karpowership power (which is gas fired and estimated at 1,200MW), as the collapse in Eskom’s capacity is simply far too large, and likely to climb over winter. Eskom says its winter “outlook shows that with breakdowns or capacity unavailable due to unplanned maintenance at 15,000MW, load- shedding might be predominantly implemented at stage 5 for the winter period. Should breakdowns reach 16,500MW, load- shedding might be implemented at stage 6. If unplanned outage averages 18,000MW, load-shedding might be required every day and might be implemented up to stage 8.” A substantial number of private sector projects have already been bid in various windows, but the state’s bureaucracy needs to quicken the progress of these projects to closure in the regulatory process and so on to construction. Additionally, the state needs to allow the just energy transition funds available from the international community to be spent on building transmission infrastructure so solar and wind energy can be increasingly generated from the coast and the Cape provinces, with the existing infrastructure having instead been built to transmit electricity from the coal power stations in Mpumalanga and Limpopo to the national grid. Graphically illustrate using the AS/AD graph and explain the impact of lower global demand on South Africa’s growth rate and inflation rate.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Forecasts for Sa’s economic growth rate have been dropping
consistently in 2023, from 1.2% year on year at the start of the
first quarter to 0.7% in March, 0.6% in April and now 0.4% in
the outcome of the May survey (all Bloomberg).
A more recent survey from Reuters in May places the outlook
for economic growth even lower, at 0.2% for 2023.
Market perceptions of the global outlook have also dimmed, with
China’s economic recovery proving weaker than anticipated
after its 2022 lockdowns, as recent production data disappoints,
including that on household spending, investment and trade
activity.
Global trade defragmentation is also weakening sentiment, with
risks of limitations on trade competitiveness growing. These
concerns, along with US recession fears and disappointment over
China’s ability to lead the global economy stronger in 2023, have
weakened sentiment, reflecting in the recent fall in oil prices.
Markets had expected a ramp-up in economic activity in China
in the second quarter, but has also been affected by destocking
amid slower sales as consumer demand weakened globally.
The latest supply chain data on sea freight signals such a recent
slowing in demand in its consumer goods shipments. The
JPMorgan Global Manufacturing PMI shows “new orders
continued to fall” in April on “a post-pandemic switch towards
spending on services ... a preference for lower inventory
holdings at clients” and still a “rising cost of living”.
S&P Global Market Intelligence adds: “US seaborne imports of
containerised freight fell by 15% year over year in April ... the
ninth straight decline on that basis. As in previous months,
consumer goods led the downturn with a drop of 24%).
“All five of the major sectors that S&P Global Market
Intelligence tracks ... experienced a decline. The slowest rate of
decline was in capital goods, which in total fell by 1% thanks to
a 21% improvement in shipments of electrical equipment.”
Lower global demand has seen a drawdown on input
(commodities, components and so on) “safety” stockpiles as
inflation fears ease, with moderating inflationary pressures
expected to persist in 2023, aiding, it is hoped, the occurrence of
a soft-landing.
April’s global supply chains were reported by the GEP global
supply chain volatility index to have had spare capacity since
June 2020 on almost a year of higher interest rates, destocking
and subdued demand, the report highlights. Commodity prices
consequently fell in the second quarter of 2023 cumulatively to
date, after lifting in the first quarter by 7.2% quarter on quarter.
The first two months of the second quarter of 2023 reversed the
first quarter’s gains on worries over global growth.
China’s huge absorption of commodities has a key influence on
commodity prices. With its economic data prints in April tending
to disappoint anticipated outcomes after the burst of activity in
the first quarter, this weakened commodity prices in April.
Besides slowing global demand, Sa’s exports have been afflicted
by the deterioration in its factors of production (such as
electricity supply, freight rail and port, water supply, road
infrastructure). There has been a consequent weakening trend in
the terms of trade over the past 12 months, adding to rand
weakness, with an average trade balance for SA of -R1.7bn in
the first quarter versus R20.9bn a year ago. (The number for the
second quarter of 2023 was R23.7bn from R16.5bn a year
earlier.)
Load-shedding will not end in 2023 or 2024, even with the
addition of Karpowership power (which is gas fired and
estimated at 1,200MW), as the collapse in Eskom’s capacity is
simply far too large, and likely to climb over winter. Eskom says
its winter “outlook shows that with breakdowns or capacity
unavailable due to unplanned maintenance at 15,000MW, load-
shedding might be predominantly implemented at stage 5 for the
winter period. Should breakdowns reach 16,500MW, load-
shedding might be implemented at stage 6. If unplanned outage
averages 18,000MW, load-shedding might be required every day
and might be implemented up to stage 8.”
A substantial number of private sector projects have already been
bid in various windows, but the state’s bureaucracy needs to
quicken the progress of these projects to closure in the regulatory
process and so on to construction. Additionally, the state needs
to allow the just energy transition funds available from the
international community to be spent on building transmission
infrastructure so solar and wind energy can be increasingly
generated from the coast and the Cape provinces, with the
existing infrastructure having instead been built to transmit
electricity from the coal power stations in Mpumalanga and
Limpopo to the national grid.

Graphically illustrate using the AS/AD graph and explain the impact of lower global demand on South Africa’s growth rate and inflation rate.

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