The jump in global economic growth in 2021 into 2022 and to date, and the availability of cheap capital, have been a huge boost for commodity prices and corporate profits. As the outlook for growth dims and the US Federal Reserve unwinds dollar liquidity, expect commodity prices and earnings growth to decline.
The most realistic expectation is that SA will have to deal with a negative terms-of-trade shock in the coming 12 to 18 months — that is if policymakers fail to engineer a “soft landing” in the global economy and we get a marked recession instead. While desirable, “soft landings” are often not achievable at a country level, let alone a global scale. Individual country economies are incredibly complex and policy co-ordination near impossible at the best of times.
The pressure on SA’s export commodity basket should continue on a dimming outlook for global growth in the short term, and the withdrawal of dollar liquidity, and the Fed continues to tighten policy in the medium term. How oil responds is more difficult to discern. Under normal circumstances, oil prices would be subject to the same gravity as the rest of the commodity complex. However, that market can defy fundamentals when geopolitics are in play.
The profit headwind that so supported tax revenues in the fiscal years ending March 2021 and March 2022 is waning.The impact of these commodity price adjustments and their negative feedback into monetary policy, growth, company profits and tax revenue could be the defining feature of SA’s economic story in the months ahead. Fiscal revenues surprised to the higher side by a quarter of a trillion rand over the past two fiscal years.