FINE LINE

A big­ger maize crop and a drop in food prices will boost SA’s econ­omy, but lo­cal and global po­lit­i­cal ten­sions may harm us

CityPress - - Business -

Mat­shego added that lo­cal eco­nomic growth would show a grad­ual re­cov­ery as global growth im­proved and agri­cul­tural pro­duc­tion re­cov­ered, given that the coun­try’s pre­vail­ing drought was fore­cast to end.

This thanks to a La Niña event, which re­sults in wet­ter-than-nor­mal con­di­tions in south­ern Africa from De­cem­ber to Fe­bru­ary, and is thus set to bring abovenor­mal rain­fall.

Mat­shego said the min­ing and man­u­fac­tur­ing sec­tors were also ex­pected to stage mild re­cov­er­ies in 2017 and higher com­mod­ity prices would boost the min­ing sec­tor.

On the down­side, he said the lo­cal econ­omy was fac­ing global geopo­lit­i­cal risks be­cause of the im­pend­ing in­au­gu­ra­tion of con­tro­ver­sial US pres­i­den­t­elect Don­ald Trump, as well as geoe­co­nomic risks, such as higher oil prices, be­cause of sup­ply cuts.

Mat­shego said Ned­bank was fore­cast­ing that the lo­cal econ­omy would grow by 1% in 2017 – up from a fore­cast 0.5% in 2016.

The In­ter­na­tional Mone­tary Fund is ex­pect­ing South Africa’s econ­omy to ex­pand by 0.8% in 2017, while the World Bank has put growth at 1.1%.

The SA Re­serve Bank is fore­cast­ing a 1.2% growth next year, while Treasury is ex­pect­ing growth of 1.3%.

Turn­ing to in­ter­est rates, Mat­shego said there could be an in­ter­est rate hike of 0.25% in the first half of 2017 be­fore the cen­tral bank started to cut in­ter­est rates in the sec­ond half of the year.

Kamilla Ka­plan, an economist at In­vestec, said con­sumer in­fla­tion was likely to move into the re­serve bank’s tar­get range of be­tween 3% and 6% as the drought dis­si­pated and food prices dropped.

With growth be­ing weak and with in­fla­tion mov­ing into the tar­get range, the Re­serve Bank was likely to hold the in­ter­est rate or start to lower it this year.

How­ever, she added, there was a risk that the re­serve bank could hike rates, de­pend­ing on rand strength and the ex­tent to which the Fed­eral Re­serve in­creased rates.

Sizwe Nxed­lana, chief economist at FNB, said in­ter­est rates were likely to be flat in 2017, but pointed out the risk that lo­cal rates could in­crease by be­tween 0.25% and 0.5%, de­pend­ing on how the rand re­acted to mone­tary pol­icy tight­en­ing by the Fed­eral Re­serve.

UN­EM­PLOY­MENT TO STA­BILISE

Un­em­ploy­ment, which reached a 13-year high of 27% in 2016, could sta­bilise and de­cline by a small mar­gin in 2017, Mat­shego said.

Ka­plan said that since the 2008 fi­nan­cial cri­sis, gov­ern­ment had been the big­gest job cre­ator in the econ­omy. This in con­trast with the pri­vate sec­tor, which had been cut­ting jobs.

Now that the state was freez­ing jobs as part of its cost-cut­ting mea­sures, this would also have an ef­fect on em­ploy­ment, she added.

She said South Africa’s credit rat­ing would re­main at risk of be­ing down­graded to junk sta­tus in 2017, but added that the coun­try would prob­a­bly main­tain its in­vest­ment grade rat­ing when the three ma­jor agen­cies – S&P Global, Fitch and Moody’s – re­viewed their stance on the coun­try’s abil­ity to re­pay its debt in May/June, and again in Novem­ber/De­cem­ber.

How­ever, the risk re­mained that South Africa’s credit rat­ing could fall to be­low in­vest­ment grade, given that all three agen­cies had kept gov­ern­ment debt at a neg­a­tive out­look, Ka­plan said.

Mat­shego said the two key fac­tors threat­en­ing South Africa’s credit rat­ing were the level of eco­nomic growth and the po­lit­i­cal sit­u­a­tion.

“The po­lit­i­cal sit­u­a­tion is vi­tal, with the bat­tle be­tween Treasury and the pres­i­dent be­ing part of a big­ger bat­tle. As the ANC elec­tive con­fer­ence [sched­uled for De­cem­ber] ap­proaches, po­lit­i­cal ten­sion is likely to in­crease.”

Nxed­lana high­lighted the risk that S&P Global could down­grade South Africa to junk sta­tus in 2017 be­cause of weak growth, while Moody’s and Fitch could keep the coun­try at in­vest­ment grade sta­tus.

“A rat­ing down­grade is on the cards,” he said.

BUD­GET SPEECH

Fi­nance Min­is­ter Pravin Gord­han’s 2017 bud­get speech, to be given next month, was likely to see in­creased fis­cal dis­ci­pline and higher taxes, Mat­shego said.

In his medium-term bud­get pol­icy state­ment, de­liv­ered in Oc­to­ber, Gord­han said Treasury was likely to raise R28 bil­lion in ex­tra taxes in the 2017 Bud­get, fol­lowed by R15 bil­lion worth of ex­tra tax mea­sures in the 2018 bud­get.

Mat­shego said the rand was likely to re­main volatile in 2017 as Trump’s poli­cies and the Fed­eral Re­serve would be key driv­ers of move­ments in in­ter­na­tional cur­ren­cies.

Ka­plan said there was scope for mod­er­ate rand ap­pre­ci­a­tion as the trade ac­count had nar­rowed and South Africa had main­tained its in­vest­ment grade rat­ing.

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