‘Something starting to give’ in SA economy, 2017 offering some hope
It was “quite apparent that something was starting to give” in South Africa’s economy, said Citibank economist Gina Schoeman on Tuesday.
Speaking at a breakfast meeting hosted by Ford, she said the country had become a 1% economy, with economic growth slipping from 3% to 2% to the current level of around 1%.
Schoeman doubted whether South Africa would this year achieve 1.5% economic growth as many market commentators had stated, with 1.3% growth more likely.
It was also unlikely that 2016 would see any recovery, with economic growth expected to slow further, to 1.2%.
Headwinds such as lower commodity prices, sluggish Chinese growth and local inefficiencies would all contribute to this forecast, she said, with 2016 not long enough to provide a fix.
“That is why we call 2016 a lost year.”
While South African exporters seemed to have found a sweet spot at R13.50 to the dollar where they could offset all of the costs that had been accumulating over the years, consumers were finding it tough, with 2016 looking bleak in terms of job losses and high consumer debt, especially in the low-income group.
Schoeman noted that expensive above-inflation wage increases had seen the private sector shed jobs through retrenchments and nonrenewal of contracts.
Business was also pessimistic about the South African and global environment.
The rand – or ‘random’, as Schoeman quipped – would most likely end up at R14 to the dollar by the end of the year.
Should South Africa be downgraded to junk, or to sub-investment status, by ratings agencies, “we would need a whole new word for the rand than random”, she warned.
The current institutional strength of the Reserve Bank and National Treasury appeared to be the most significant barrier to such an event.
Schoeman added that there was a fair chance that the Reserve Bank would hold interest rates steady next year.
She expected the value-added tax rate to increase only in 2017, when economic growth had gained some traction, as any immediate action “would be hurtful to the consumer”.
Schoeman said the medium term offered some hope for “structural reform” in South Africa, which should stimulate economic growth into 2017 and beyond.
This structural reform would, for example, arrive in the form of new electricity generation capacity being added to the grid as South Africa’s new power stations come online, as well as the benefits of infrastructure spending, such as parastatal Transnet’s improvements to its rail and port networks.
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