The weak link in BRICS

The weak link in BRICS

One of the leaders of developing countries, South Africa, went into a state of technical recession — the economy is declining for two quarters in a row. While South Africa is the only country in BRICS, which shows a decline. In turn, international organizations have improved the forecast.

South Africa has entered into a technical recession: the economy contracted for two quarters in a row, losing in the first quarter of 2017 0.7% and the previous 0.3 per cent. While economists had expected in January – March growth of 1%, says Bloomberg.

Perhaps weak economic indicators caused the resignation of the Minister of Finance of South Africa Pravina of Gordhan at the end of March. Experts point out that the dismissal of Gordhan, most likely, will negatively affect the future growth of the economy, as it reflects problems in the political life of the country, reports Business Insider. Immediately after this action, Jacob Zuma rating agencies S&P and Fitch downgraded the country’s credit rating to “junk”.

“Gordhan was dismissed on March 31, so this event can only affect the second quarter. But published data (GDP) indicate that even before the shock of the departure of Gordhan the situation was much worse than the expectations of most analysts,” says John Ashbourne, an expert on African economies at Capital Economics.

It is equally important that the economic downturn occurs amid rapid growth in the agricultural and mining sectors, adds Eschborn. Agricultural GDP increased at an annual rate of 22.2% compared to the previous quarter — the fastest pace over the past 10 years.

“Therefore, it is impossible to call bad weather or changes in production of volatile sectors cause unexpectedly poor performance of the economy. In contrast, the slowdown in the first quarter was due to much worse results are usually stable sectors that are customer-oriented and were key drivers of growth in recent years,” explains Eschborn.

In late March, South African President Jacob Zuma reshuffled his Cabinet, replacing Ministers and Deputy Ministers — including the popular Previn of Gordhan — loyal political allies.

The new Minister of Finance was Malusi of Gigaba, former Minister of internal Affairs. Gigaba, which was criticized for the introduction of extremely tough visa restrictions, dealt a serious blow to the tourism industry of Africa has little experience in the economy.

Representatives of the main opposition party Democratic Alliance said that they will appeal the President’s decision in court, and the citizens of South Africa in protest took to street demonstrations. And even Deputy President Cyril Ramaphosa, which is considered a likely successor to Zuma as leader of the ruling party, called the dismissal of Gordana “unacceptable”.

Amid all this country for some time struggling with other weak indicators, in particular unemployment.

Within a few years the official data reported about 25%, but in the first quarter of 2017, the unemployment rate increased to 27.7%, the highest level since the first quarter of 2004.

The unemployment rate among young people is even higher — 50.9 per cent (however, in the previous quarter was 54.2%).

Only about 15% of students who begin study at a South African University or technical College graduate from them. Many cannot afford to pay for training, however, interrupting him, they don’t have the skills necessary for a successful job search. In 2015, the universities wanted to increase the cost of education by 10%, which led to massive protests by South African students, and in the end this idea was abandoned. In this case, as in many African countries, the proportion of residents aged under 24 years is very high — now it is 46,95% of the total population of the country.

The problems in the economy of South Africa is not reflected in the global growth according to the latest survey by the world Bank, all allies of the country on the BRICS demonstrate confident results.

According to calculations of the organization, developing countries in 2017 is expected to grow by 4.1% (the world growth as a whole will be about 2.7%), and the leader will be India with 7.1%, ahead of China with 6.5%.

The report highlights a return to growth after two years of problems with some of the largest developing economies: Russia’s economy to grow 1.5%, Brazil 0.3%.

On 7 June came the report of the Organization for economic cooperation and development (OECD), which has improved the forecast on growth of Russia’s GDP in 2017 0.6 percentage points to 1.4%. The forecast for 2018 is 1.6%. According to the OECD, the economic recovery will contribute to growth in oil prices, wages and lowering interest rates.

“The seven largest emerging economies — China, Brazil, Mexico, India, Indonesia, Turkey and Russia — remain a key motor for the world economy,” write economists at the world Bank.

However, the world Bank continues to Express concern over the growing debt and budget deficits in emerging market economies, which makes them “more vulnerable to financial shocks”.