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