Trade war escalation to negatively impact SA's GDP growth - Fitch

(iStock)
(iStock)

The impact of the escalating global trade war is likely to shave 0.1% off South Africa's gross domestic product (GDP) baseline forecast in 2019 and 0.2% in 2020, according to Fitch Ratings' June 2018 "Global Economic Outlook" baseline forecast.

Fitch forecast that the escalation in the trade war is likely to reduce the world GDP by 0.4% in 2019 and by 0.3% in 2020.  

"An escalation of global trade tensions that results in new tariffs on $2trn in global trade flows would reduce world growth by 0.4% in 2019, to 2.8% from 3.2%," the Fitch Ratings said in a statement on Wednesday.

The US, Canada and Mexico would be the most affected countries. Fitch expects China would be less severely impacted, with GDP growth around 0.3% below the baseline forecast. Fitch points out that China would only be affected directly by US protectionist measures, whereas the US would be imposing tariffs on a large proportion of its imports, while being hit simultaneously by retaliatory measures from four countries or trading blocs.

"The imposition of further tariff measures currently being considered by the US administration and commensurate retaliatory tariffs on US goods by the EU, China, Canada and Mexico would mark a significant escalation from tariff measures imposed to date," according to Fitch.

"The tariffs would initially feed through to higher import prices, raising firms' costs and reducing real wages. Business confidence and equity prices would also be dampened, further weighing on business investment and reducing consumption through a wealth effect."

Over the long run, the model used by Fitch factors in productivity being affected as local firms are less exposed to international competition and so would face fewer incentives to seek efficiency gains.

Export competitiveness in the countries subject to tariffs would decline, resulting in lower export volumes. The negative growth effects would be magnified by trade multipliers and feed through to other trading partners not directly targeted by the tariffs. Import substitution would offset some of the growth shock in the countries imposing import tariffs.

Fitch forecasts that most countries not directly involved in the trade war would see their GDP falling below baseline, though generally at a much lower scale.

Net commodity exporters would be more severely hit, as slower world growth would push oil and hard commodity prices down. On the other hand, for some net commodity importers, the benefits from lower hard commodity prices would more than offset the impact of lower world growth.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
ZAR/USD
15.16
(+0.11)
ZAR/GBP
20.59
(-0.05)
ZAR/EUR
18.30
(+0.01)
ZAR/AUD
11.68
(-0.61)
ZAR/JPY
0.15
(+0.02)
Gold
1828.12
(+0.05)
Silver
24.75
(+0.09)
Platinum
1070.99
(+0.29)
Brent Crude
54.89
(-2.34)
Palladium
2377.00
(+0.59)
All Share
63549.75
(-0.52)
Top 40
58446.35
(-0.49)
Financial 15
11916.89
(+0.01)
Industrial 25
83811.01
(+0.08)
Resource 10
63855.25
(-1.46)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
Yes, and I've gotten it.
21% - 652 votes
No, I did not.
51% - 1616 votes
My landlord refused
28% - 875 votes
Vote