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Economy contracts 0.6% in third quarter

Numbers support the notion of a Moody’s downgrade in 2020 – Nedbank economist.

South Africa‘s economy shrank for second time in three quarters this year, data showed on Tuesday, as productive sectors fell across the board and companies slashed inventories, amplifying the chances of ratings downgrades to junk.

Africa‘s most advanced economy has struggled to emerge from a deep slump in the nearly two years since President Cyril Ramaphosa took the helm with promises to reform and is now on the cusp of losing its last investment grade rating from Moody’s, and billions of rands of investment with it.

Gross domestic product contracted 0.6% in the third quarter against a 3.2% expansion in the second quarter, Statistics South Africa said.

In the first quarter, GDP contracted by 3.1% following nationwide electricity blackouts by state power firm Eskom, and while the cash-strapped utility resumed blackouts in September third quarter activity was hit hard by lower production in mining, manufacturing and agriculture that analysts said was linked to lower investment by firms and smaller exports.

Inventories, a measure of investment by firms, fell 9.5 billion rand in the quarter, with exports subdued at q/q growth of 3.5%. The stats agency said some companies had indicated cutting stocks in the previous quarter in anticipation of lower demand.

“If there’s no production in mining and manufacturing, and those are the type of products we are exporting, then inventories will fall. And if we’re not producing goods, you don’t have anything left to export,” said Joe de Beer, senior economist at Stats SA.

Sharp dips in mining, manufacturing and agriculture were the largest contributors to the negative growth in the third quarter, with agriculture affected by a severe drought which has forced government to ration water supplies nationwide.

Mining production fell 6.1% in the quarter, manufacturing was down 3.9% while agriculture contracted by 3.6%. The three taken together represent about a quarter of domestic product and a large chunk of taxes revenues and employment.

The latest data piles the pressure on Ramaphosa, particularly from ratings agencies which have flagged weak growth as a major risk, and investors weary of increasing state debt as revenues slide.

“Growth in the Moody’s criteria is a highly sensitive measure. They already expect sub-1% long run average growth and this will impact the fiscus and imply that our debt and deficit metrics have worsened,” said economist at Nedbank Reezwana Sumad.

Moody’s is the last of the top three agencies to rate the country’s debt at investment level, and it is set to review the rating in March after downgrading the outlook to negative in November.

“These numbers certainly do support the notion of a downgrade by Moody’s in 2020,” Nedbank economist Sumad said.

“In a political environment where it is difficult to cut government wages you could see treasury forced to raise wealth and personal taxes, and that’s something it doesn’t want to do.”

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Absolutely tragic to read this. The planet is growing and we are shrinking. More unemployment, probable downgrade by Moodys so higher interest rates, inflation, fuel and food prices! Accordingly higher crime and more social unrest.

Its time for the ANC to sit down with business and implement a plan to turn this tragic situation around. We cannot continue on this path!

If such a plan as you propose is logical, practical and constructive it will not be acceptable to the socialist cretins governing the country. Onwards we plod to Zim. v2.

Well it’s not rocket science what needs to be done. But it’s been made clear there is no appetite to address Eskom and SAA, instead offering fuzzy plans that ‘might’ have some effect in years from now. The hard decisions are never taken. We don’t need investigations to see SOE’s are bleeding us dry and unions are destroying whole industries by their outrageous behaviour.

We now seem 100% committed to crash this country’s economy into the surface of the sun at a million miles per hour screaming amandla at the top of our lungs.

You also just need to be realistic. The headlines are not reading big negative growth of 10% in GDP. It is instead saying, the economy is not growing, or growing extremely slowly (if at all). I agree with your points that things are very badly run in the country and the right decisions for growth are not taken … but … inflation is about non-existent (where exactly are you seeing the Zim inflation coming from?), our currency is strong (and has good prospects to remain strong) and (believe it or not), we have a much better chance than the USA to get on top of our debt. The USA is long past the point where there debt could ever be repaid – we are in the fight to avoid that.

I think we’re all missing the point that under the supervision of Jacob Zuma all SOEs were deliberately mismanaged as a cover for wholesale looting.

The ANC was essentially running a major criminal enterprise.

Who knows how much that has all changed under Cyril. Not very clear

Don’t worry, Government is still hell-bent on rolling out the NHI private health care to all citizens and illegal emigrants. As Jacob Zuma said: “When the presidents of other countries introduce new programs, their finance ministers don’t ask them where they must find the money, they just make a plan.” So I am sure they will “make a plan”.

They do have a plan.

It’s called your RA and pension.

Agree Incitatus, unfortunately.

It’s as clear as day….the R6-trillion in ret fund assets is too large to ignore.

Only once most of the nation’s ret savings have been depleted, then we will be on the brink of total chaos. Plus no funds to pay for imports. “Dis verby.”

The funding to keep the (unsustainable experiment) of AA/BEE alive, will dry up.

Why are we not surprised.
There is the perpetual (and large) delta between what the over-paid ministers and government employees think and the reality.
Any more dips and there is not enough to revive the patient or the SA citizen.

The “New Dawn” will soon be synonymous with absolute and continuous failure.

Lets hold another job summit, or even better an economic growth summit! Problems are obvious BEE, EWC and NHI. The last two will break the camels back.

A “memorial lecture” might be more applicable in this instance.

Some create a surplus. Some consume the surplus and then have to consume the source of that surplus, typically to annihilation of that source. Those are the only two categories that exist on this planet. They are mutually incompatible. You are either one, or the other. We know which camp our cadre-stocracy falls into, so why are we in any way surprised by the metrics that explain that?

This is nothing. Wait till you see the contraction in tax collection by the folks of SARS this year, e-filing deadline is tomorrow. When I pay my tax these days, I feel as if I should receive a bottle of wine and a thank you card from SARS, there are only a couple of us left….

So, where to from here?
SOEs bankrupt with no indication of reform or recovering. Private sector is being sucked dry and squeezed for every penny.
Government and leadership is hellbent on serving their own agendas and lining their own pockets.
Their socialist game plan keeps the votes coming, but it’s sucking the country dry of any sort of real, organic growth which is needed to
fulfil ther promises made to the people.
And when things go wrong, they just fall back onto the WMC, apartheid etc. narrative which serves them so well.

Where’s the real leadership? Where’s the real change going to come from?

Because we are quickly running out backups, quick saves and gap fillers and it’s a slippery slope on our way to the point of no return.

Where to from here?

….well, make sure you have at least possible capital in formal retirement products (RA, Pension, Provident. Preservers). Too late for most of us that already accumulated of of life savings, but younger generation can shun RA’s and rather invest direct abroad.

Companies that offers Pension/Provident Funds as part of CTC, should be at a disadvantage in future. It will be more attractive to pay higher gross closer to CTC, and let employees self-invest.

Not to worry good citizens of Mzanzi! Our saviour is soon to be put into action – called Expropriation Without Compensation (commonly known as theft). Land will be expropriated. Private pension funds will be expropriated (i.o.w. prescribed assets). Medical Aids with their surplus reserves will be expropriated (NHI). Problem solved. There will no longer be inequality. Everyone (that is left in the country) will be equally poor – except for our supreme leaders who will lead with glorious wisdom. Objective of the National Democratic Revolution achieved!

SA needs meaningful economic thinking change. There are only 2 ways:
A) Through the ballot box – low probability like we saw on 8th of May
B) A crises that leads to independent intervention like junk status and eventually the IMF

Option B looking like a real winner as we progress on the slippery slope

High levels of personal, municipal, SOE, business and state debt, plus zero growth in the availability of cash flow to repay loans, leads to pressure on the Reserve Bank to lower the interest rates and to weaken the currency.

The Reserve Bank uses high interest rates to bribe investors to lend to the government. This implies that the entire economy is held at ransom by ANC incompetence and criminality.

GDP growth evaporated because the Reserve Bank has to compensate for Luthuli House.

It da Afrikan way ,down , down ,talk talk, steal steal until nothing left.Dow jones up 25% this year and an emerging economy on the skids.
Nigeria predicted to have 25% of the poorest on the planet within a few years – better add Azania to dat list.
CR president for 2yrs and it just gets worse.

One of the positive things that can be said is that it still could have been a LOT worse. If it were not for the Reserve Bank, we would already be completely down into the gutter.

Also worthwhile to note that the USA is not without its problems. They have enormous amounts of debt there that can (probably) never be repaid. I speak under correction, but I believe about half of their budget currently goes towards financing their debt. They are out of cards to play and the only way out is probably large devaluation of their currency. The valuation of the S&P500 is strongly disconnected from the underlying reality – it is almost a certainty that things will not continue as they currently do over there.

I would rather take my chances with the USA than with the corrupt Caucasiophobic regime in SA…

A simple google could have clarified this for you. From https://www.pewresearch.org/fact-tank/2019/07/24/facts-about-the-national-debt/:

“Net interest payments on the debt are estimated to total $393.5 billion this fiscal year, or 8.7% of all federal outlays.”

Also:

“By comparison, debt service was more than 15% of federal outlays in the mid-1990s.”

So miles away from “about half”. Still a lot of moola to be sure, but there’s room there. 100% debt to GDP is not uncommon for developed countries.

Not to worry, we’ll hyper-inflate our way out of this mess.

agree completely, Witbooi. The ANC will just start to print money. It worked in Zimbabwe and it will work here. The outcome is 100% predictable and 100% self inflicted (this capitalism is a bitch, no?)

R6 trillion in RA funds @ R15-$1 vs R6 trillion at R20-$1, that wipes out 25% in a flash.

I don’t have the data but it would be interesting to how long it took for the RA to save up R1.5 Trillion.

The only option ordinary South Africans have is to have their cash in Dollars, Euros or Yaun ¥€$

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