Russia’s invasion of Ukraine has led to turmoil in the global markets but is unlikely to have a major impact on the broader growth impact on South Africa, say economists at the Bureau for Economic Research (BER).
In a research note on Monday (28 February), the group noted that South Africa’s trade links with Russia are relatively limited, with the country making up less than 0.4% of total merchandise exports in 2021. South Africa imported goods worth R9.2 billion from Russia in 2021, less than 1% (0.7%) of total imports.
“However, some listed companies have more exposure to the country, and specific sectors, such as citrus producers and fruit exporters in general, are more susceptible to downside risk should trade with Russia come under pressure amid the impact of sanctions and/or a likely steep downturn in the Russian economy. South Africa’s trade linkages with Ukraine are very minor.”
A more indirect, but potentially larger, impact on South Africa exports will be if a dragged-out conflict and the cancellation of Nord Stream 2 lead to sustained higher European gas prices, which will weigh on real GDP growth in the region, said the BER.
Nord Stream 2 is a 1,200km pipeline under the Baltic Sea, which will take gas from the Russian coast near St Petersburg to Lubmin in Germany.
“While the higher oil price will also have inflationary consequences here, the ongoing geopolitical tension has boosted the prices of some of South Africa’s key export commodities, including PGMs and gold. Russia is the world’s largest palladium producer, with South Africa second.
Inflation and energy
Outside of the direct losses from an escalating war, the most direct impact on the global economy could be to sustain current high inflation for even longer, the BER said.
“In addition to higher global grain prices, the Brent crude oil price breached $100/barrel for the first time since 2014 towards the end of the week. Brent crude averaged $96/bbl in February, almost 10% higher than in January.”
The result is that the domestic petrol price will increase by a substantial R1.46/litre on Wednesday, with diesel up by a similar amount.
“An environment of persistent supply shocks that could start to dampen demand complicates the future interest rate path for many central banks. While central banks are generally not reactive to once-off cost-push pressures, multiple supply shocks mean a greater risk of secondary price effects emerging,” the BER said.
Despite the turmoil, the rand has so far been fairly well-behaved, ‘only’ losing 0.5% week-on-week against the US dollar last week, the BER said.
“The local currency could be adversely affected if sentiment towards emerging markets (EM) in general sours. Increased global geopolitical tension is generally negative for the rand, although one could argue that the SA currency is now deemed safer than some of its usual EM peers.
“Besides Russia, this includes Turkey, which has been dealing with its own issues pertaining to monetary policy in particular.”