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SA escapes recession, but …

Despite improved outlook, risks remain.

The economy is off life support but weak confidence, electricity supply constraints and uncertainty in the run-up to next year’s election may conspire to keep economic growth below levels that will appease ratings agencies or support meaningful job creation in the short to medium term.

South Africa officially emerged from a technical recession in the third quarter after gross domestic product (GDP) climbed 2.2%, data from Statistics South Africa showed on Tuesday. The second quarter slump was revised from 0.7% to 0.4%.

Source: Stats SA

The manufacturing industry, which grew 7.5%, was the main driver of growth and experienced its largest jump in production since the second quarter of 2016.

Source: Stats SA

Despite the improvement, the economy remains weak and economists are predicting growth of between 0.7% to 0.9% for 2018, lower than the 1.3% recorded in 2017.

“It is still pretty dismal,” says Johann Els, chief economist at the Old Mutual Investment Group. “We expect growth to continue to pick up on a cyclical basis next year and then, after the elections – as policy certainty hopefully comes through – some better growth to come through eventually.”

Business Unity South Africa (Busa) president Sipho Pityana says while any bit of growth is welcome, the organisation would caution against an unrealistic reading of what is an urgent situation in the economy.

“We know what the issues are, and the time for talking is over – we have entered a phase where we need to act swiftly and decisively and make the necessary changes, reforms and interventions required on the economy,” Pityana says.

Els says that while South Africans expect more to be done, there has been some steady progress on many fronts, including improvements to the cabinet, commissions of inquiry into state capture and the South African Revenue Service, new boards at Eskom, Transnet and Denel, as well as a new mining charter. All these factors will work together to stabilise confidence.

President Cyril Ramaphosa on Tuesday appointed advocate Shamila Batohi as the new national director of public prosecutions.

Better growth prospects and a low inflation environment will also help, but these things take time, Els says.

The confidence factor

“Often you can see a sharp turnaround in confidence. We are not there yet – we probably need to wait till after the elections [in 2019].”

If policy certainty returns and confidence improves, economic growth could recover to 2% in 2019 and 2.5% in 2020. Although lots needs to happen to get growth sustainably above 3%, an improved outlook, relatively low inflation and a stable to stronger currency should help to improve confidence, he says.

“We need confidence and once it comes through in terms of consumer, business [and] investor confidence, things should start improving.”

Reza Hendrickse, portfolio manager at PPS Investments, says that while third quarter data presents a solid foundation to build on, they remain circumspect around future growth prospects.

“The short-term impetus we are currently seeing is encouraging, but may be negatively impacted by Eskom’s power generation capacity affecting economic output.”

Eskom has implemented rotational load shedding daily since November 29.

Els says that while load shedding is a risk to the economic outlook, it is difficult to ascertain the extent thereof.

“We don’t know what industries are being impacted on a daily basis, but we have to assume that it is going to pull down growth.”

Eskom

Busa CEO Tanya Cohen says they are “particularly perturbed” about the situation at Eskom – not only the negative economic impact of power outages, but also its dire financial situation.

“We cannot afford a repeat of 2008,” Cohen says. “There is no fiscal space to bail out Eskom, or any other SOE, amid rising public sector debt levels and a runaway state wage bill. We are extremely concerned about National Treasury’s ability to contain the budget.”

Hendrickse says forecasts are currently expecting growth to accelerate towards 2% in 2019, but with global growth having plateaued, the backdrop for accelerating domestic growth could prove challenging.

Jabu Mabuza, co-convenor of the CEO Initiative, says while the positive performance in the third quarter is welcome, they are cognisant that a lot of work remains to be done before the country can achieve the level of growth that would sustainably improve the lives of its most vulnerable citizens.

Investor-friendliness required

“As such, we urge the government and its social partners to continue with effecting the required reforms the country needs to perform at its optimal level. A more investor-friendly environment, along with the impact of the government’s stimulus efforts and recovery plan, should result in a sustainable economic improvement over the medium term,” Mabuza says. 

Els says Moody’s has been willing to give South Africa the benefit of the doubt, but if growth does not reach at least 2-3% over the next few years, the country will face another credit rating downgrade.

“At this pace, we can’t make any inroads in the deficit unless we cut [expenditure] significantly,” he says.

Cosatu spokesperson Sizwe Pamla says that unfortunately, government is continuing to adopt regressive and contractionary policies that only focus on cutting social expenditure and thus weaken the capacity of the state.

“The deceleration of fiscal spending since 2014 in an environment of depressed private sector investment and household spending will continue to keep this economy on its knees.”

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The double edge sword has not been said yet but I will say it.

Population Growth is exceeding 1.2% average per year there are extra 660 000 mouths which need to be fed and students to educate.

This together with high unemployment 38% (17 million people) will only frustrate efforts attain any real and meaningful growth.

absolute dire outlook and IMPOSSIBLE to escape from this plight…….the curse of Africa and accepted by Africans?

Not unique to SA. A lot of African countries have population growth rates which are a fair amount higher than economic growth rates. A lot of these countries have quite high growth rates as well which is concerning.

I have never seen a bit of research done as to whether it is the lower LSMs driving that population growth rate or not, perhaps because it is a bit of a taboo subject to tell Africa that part of the problem is the high population growth rate among some of the poorer on the continent.

Be careful with your stats here. Economic growth is always quoted in real terms so economic growth of 1% is equivalent to nominal economic growth of say 7%. You must compare this nominal growth figure to nominal population growth stats.

Yes, this population growth rate is a problem and in terms of a global perspective and considering the fact that the size of the Earth is fixed and its resources are limited it is not just a problem locally. However, it is the current situation and may be alleviated through education and other interventions over time. On the upside though, it means that in fact SA has a huge potential workforce, and the real problem is how to get this potential workforce into action. That is the real challenge. Getting rid of economical restrictions and regulations based on race as currently imposed by the government would be step one in my view. SA needs a free economy. It is not free at this stage. Free the economy and you free the people. Then they can work.

Getting the Labour force to work is a big problem at the moment, bonuses, accolade anf rewards are seen as entitlements.

Labour unfortunately has a disjointed relationship with employers in that work is as once employed always employed.

Unions unfortunately work to the detrament of employees by making false promises, use the work place as a political soccer field and allowing politicians to slave employees as jobs for votes

Huge potential workforces don’t mean much in today’s world unless they are highly educated or highly cost-effective.Neither situation prevails here. SA is in big trouble as our social pressures continue to mount with no release valves in sight.

You have a point! For example, the majority of our youth have the skill to play SOCCER 🙂

…but on a national level, not even that they can do well! 🙁

as one of my Professors siad: There is a huge difference between doing impressive tricks with a soccer ball and actually scoring goals (the real skills )

Hurry up and wait for things to improve… the same old story. The only thing that will give this economy a serious boost is if the ANC is voted out or diminished to the point that it’s forced to share power with a party which isn’t hell-bent on destroying the economy (only the DA comes to mind, the rest are just as bad if not worse). South Africans hold the fate of their country in their hands. Vote for change! Vote for a party that will make SENSIBLE decisions for the good of all South Africans for a change and start turning this country around.

DA will never be voted in and likely to decline in my opinion.

The reason is probably linked to the population growth rate.

Reality is that you need to be fairly well educated to understand what the DA have done in the WC/Gauteng (i.e investment grade ratings, clean audits, tackling corruption etc). You also need to be fairly mature to ignore the constant race baiting in SA.

I am pretty sure the lower income ANC/EFF voters are neither educated nor mature enough to vote based on the best long term solution is.

Problems at ESKOM are real and only Brian Molefe and Mr M koko have the knowledge on how to fix that. You may throw tantrums and shout ontop of your voices but i will say to the powers be that bring back Brian Molefe and our electricity issues will be solved. The current CDEs running the institution are in my opinion clueless.. Mazvinzwa wana bharanzi. Icho.

Good one! I second that.

Can Mr Molefe & Koko please step forward and stick your respective fingers into the live power socket….

(…we need roast meat by this evening, please)

“The definition of insanity is doing the same thing over and over again, but expecting different results” – Albert Einstein

Humba Makombe, my brother, there you have it- the official diagnosis by the most prominent scientist of all time – you are insane!

Are you serious or joking? Or a Gupta looking for some more loot?

Let me guess ‘Bring back Zuma’ is your next suggestion?

Junk status just reconfirmed. Another success story brought to you by the cANCer. Dismal growth but food and fuel prices increases like mad. A sure story of approaching poverty for the middle class. Guess what – now including presently-advantaged anc voters. ;-).

Population increase, let’s talk about tax paying population increase ? Just creating a greater deficit and greater burden on the tax payer

Industry and production was the main driver of growth? How does the Eskom load shedding (aka government, give us what we want or we will turn the lights off) effect production?

South Africa is finished.

I would guess South Africa’s sustainable economic growth rate at 1-1.5%. That means social unrest like you have never seen before. Our pathetic police force plus defence force have no chance of combating what is coming plus it will endorsed by the likes of the EFF.

I for one don’t believe a single stat coming out of any government quarter, it is misaligned and generated for political posturing. The problem in South Africa is that it is easier to stick our heads in the ground and pretend that everything will be OKAY! The return of the “old elephant” (namely, Eskom / Load Shedding) will undo whatever relative constructive work that may have been done and plunge us down the proverbial “CRAPPER” in no time at all. South African politicians are akin to Hyenas with all of the scrapping over the carcass (the South African citizen), sadly we seem to be okay with this. Each electorate grouping condemns the opposition’s political hyena as if to say “I don’t mind being eaten by my own hyena, but i object profusely to being eaten by hyena from the opposing political believe, racial grouping, social setting. Bottom line – it is not cool to be mauled by any hyena………..

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