Decline in confidence a setback - Moody’s
RATINGS agency Moody’s Investor Service said yesterday that the decline in South Africa’s investor confidence was a setback to the country’s growth, saying it expected investment to stagnate “at best” this year.
Reduced business confidence implied reduced investment, which would affect growth in the country’s already weak economy “and will ultimately make fiscal consolidation more challenging,” Moody’s senior analyst, Zuzana Brixiova said yesterday.
In order to, among others, instil confidence in the economy, the government’s fiscal policy would need to prioritise the reduction of the budget deficit and the stabilisation of debt. Brixiova said slow growth made fiscal consolidation difficult to achieve.
“Strict adherence to expenditure ceilings has been a hallmark of the National Treasury, but falling growth has reduced revenue collection,” she said.
Former finance minister Pravin Gordhan earlier this year raised alarm over the declining tax collections, saying in his National Budget speech in February that revenue had lagged behind the economy, leading to a R30 billion shortfall measured against the estimate in his previous national budget.
Brixiova cited last week’s announcement by the Bureau of Economic Research (BER) which showed that business confidence in the country was at its lowest level since the financial crisis of 2009.
Despondency
BER said, after ranging between 32 and 42 index points in the past year, the RMB/BER Business Confidence Indexfell to 29 points from 40 points in the second quarter of this year. “We last saw such despondency during the 2009 recession,” BER said.
Persistently low business confidence reflected the ongoing uncertainty about future political leadership in the ANC and the policy priorities of the new leader. “Investment will be further delayed and with it a substantial growth recovery. Real investment in 2016 declined by 3.9 percent, similar to the drop recorded during the global financial crisis,” said Brixiova.
She said dampened investment would affect South Africa’s weak economy. The country is in recession after gross domestic product (GDP) in the first quarter of this year fell by 0.7 percent following a 0.3 percent drop in the last quarter of last year. “Earlier this year, we revised down our forecast for South Africa’s real GDP to 0.8 percent from 1.1 percent (this year) and to 1.5 percent from 1.7 percent (next year).
“Without improved trust in policy making, it is likely that South Africa will remain in a low-growth trap,” she said.
Government debt to GDP is currently projected to peak at 53 percent next year and decline thereafter, putting to an end years of gradual debt accumulation. “However, this objective is more difficult as growth slows. We project that instead of stabilising, debt to GDP will continue to rise, even after exceeding 55 percent next year,” said Brixiova.
Meanwhile, the Merchantec Chief Executive Confidence Index recorded a 24.75 percent decrease in confidence between first and second quarter of this year to 38.7 points, way below the neutral score line of 50 points.