JOHANNESBURG – With the mining and manufacturing sectors under significant pressure, and electricity constraints and declining vehicle sales taking its toll, fears are mounting that economic growth may be grinding to a halt.
Speaking at an Old Mutual Investment Group quarterly briefing, senior economist Johann Els, said although seasonally adjusted and annualised GDP growth of between 0% and 1% is expected in the second quarter, there are worries that actual growth may be “very close to 0%”.
This compares to growth of 1.3% in the first quarter and 4.1% in the fourth quarter of last year. The second quarter GDP figure will be published later this month.
While some have expressed concern that the South African economy may be heading for recession (the technical definition of a recession is two consecutive quarters of negative growth), bumping along the zero line is almost as bad, he said.
But while there are various factors hindering economic growth, there are also a few economic numbers that have improved since 2014.
“Admittedly it is not great but there are some positives.”
Els said the inflation outlook has moderated and he only expects one more interest rate hike of 25 basis points during the current cycle, which will bring the prime lending rate to 9.75% by the end of 2015.
“It is going to be a mild cycle, which will help consumers.”
Although the 2003 to 2007 boom period for consumer spending won’t be repeated in the near future, it is unlikely that consumers will experience the same recessionary type of conditions that transpired during the 2008 period.
Els said in the absence of a global recession and a deep local recession, they don’t expect significant economy-wide job losses. While sectors like mining will shed jobs, it is unlikely that disposable income growth will collapse in the same manner it did during the previous downturn.
The current account deficit is forecasted to narrow to 4.3% of GDP this year and 4% in 2016. This compares to 5.8% in 2013 and will help to stabilise the currency, he said.
In recent weeks the local currency has traded at its weakest level since 2001 against the dollar on more than one occasion. The chart below shows the depreciation of various currencies against the dollar over the past four and a half years. January 2011 is used as a starting point and indexed at 100.
Source: Old Mutual Investment Group
Els said the rand has been amongst the weakest currencies during this period and finds itself in the company of Brazil, Russia and Turkey.
If the exercise is repeated from January 2014 onwards, the rand is in more or less the same position as the currencies of New Zealand and Australia, which have been hurt by a stronger dollar and weak commodity prices.
“We are not out of line. You can make an argument that maybe all the negatives in the South African economy have been priced into the currency.”
However, over the medium to longer term the rand is still expected to weaken given the inflation differential between South Africa and its trading partners.
In the very short term there is a possibility that the currency may stabilise somewhat once the Fed starts hiking rates, he said.