GDP slump puts Moody’s on alert

Policy, skills shortages, inflexible labour curb growth

INTERNATIONAL credit ratings agency Moody’s is watching the country’s progress in addressing skills shortages and inflexible labour markets and whether political tensions ease before it can be convinced that South Africa is on a sustainable growth path, the agency said this week after the worst GDP figures since the recession were announced.

On Tuesday, Stats SA announced weaker than expected GDP growth of 0.3% for last year — against an earlier forecast of 0.5% by the National Treasury — as mining and manufacturing disappointed.

In 2015 the economy mustered 1.3%, still too low to create jobs and lift a significant number of people out of poverty.

This year growth is expected to lift to about 1%, boosted by a recovery in commodity prices.

Zuzana Brixiova, Moody’s vicepresident, senior analyst and lead sovereign analyst for South Africa, said last year’s GDP figures were not a surprise given that the agency’s forecast was for 0.2% real GDP expansion.

“Hence, our projection of growth of 1.1% for 2017, which includes the assumption of low or even stagnating private investment, remains unchanged.”

Moody’s is one of three international credit ratings agencies that have South Africa on watch for a downgrade this year. It has pencilled in a ratings action for April 7, according to its calendar.

Brixiova said: “We would be more convinced that growth is on a sustainable path if some of the long-term structural bottlenecks such as skills shortages, relatively inflexible labour markets, and increasingly also political uncertainty stemming from political tensions were addressed.”

In November, Moody’s affirmed its Baa2 rating — two notches above junk status — with a negative outlook.

Brixiova said positive factors that would support medium-term growth recovery were labour related, such as a reduction in the number of strikes and workdays lost, as well as fewer electricity shortages.

“However, political uncertainty remains,” she said.

Michael Manamela, director of national accounts at Stats SA, said a recovery in the mining sector would be important for improvement in other sectors of the economy. But the sector’s recovery was dependent on global demand from large industrial economies.

“If they constrain their growth that will definitely have a negative impact on us.”

Manamela said the recovery in commodity prices may not have an immediate effect on the economy as some commodity contracts were fixed and had to be honoured and the sector therefore may not benefit significantly from higher prices.

Mining and quarrying GDP contracted 11.5% in the last quarter of last year after showing improvement in the second and third quarters.

Impala Platinum, one of the world’s largest platinum producers, is sceptical of an improvement in market sentiment and the prices of platinum group metals in the short-term because of global uncertainty.

Spokesman Johan Theron said: “Low metal prices in turn will continue to impact the financial viability of the industry and the capacity at which the industry can operate profitably, with associated further job losses on the horizon.”

He said the group’s labour-intensive South African operations were not running at their full potential due to work stoppages and disruption by communities.

Johan Botes, CEO of Torre Industries, which provides industrial equipment to the mining industry, said he expected an improvement in construction activity.

But there were political and economic risks.

“There is a risk that the commodity cycle does not continue to recover.”

The manufacturing sector, also a large employer, shrank 3.1% in the last quarter of last year.

Nevashnee Naicker, spokeswoman for Tiger Brands, said: “The trading environment remains difficult. The focus will continue to be on optimising margins without sacrificing market share.”

Job losses during the year and high interest rates further constrained consumption and consumer confidence. The Reserve Bank’s monetary policy committee last cut the repo rate on July 20 2012 — to 5%.

It has raised the rate by 200 basis points since 2014, pausing early last year in the face of anaemic growth.

An upswing in the economy is projected for this year especially since the drought in large parts of the country has ended.

Stats SA said the contraction in agriculture had narrowed from 8.7% in the first quarter of 2016 to 0.1% in the last quarter.

Statistician-General Pali Lehohla expected better growth prospects. He said his view was supported by double-digit growth in exports, even though this came off a low base.

“We have reached the bottom [of the cycle] . . . It’s definitely positive.”

Low metal prices will continue to impact the financial viability of the industry