‘South Africa’s economy stuck’

POLITICS DESTROYING CONFIDENCE: CORPORATES HAVE LONG-TERM HOPE

Start to clarify policy. Start to make firm, strong statements about issues that have created uncertainty – Kevin Lings

Even if the SA Reserve Bank (Sarb) decides to cut interest rates by 25 basis points twice more in the coming months, it’ll probably not materially change the lack of confidence stifling the economy, Stanlib chief economist Kevin Lings argues.

“You are not dealing with the key thing that is undermining the confidence, which in our mind relates to political uncertainty and policy uncertainty,” he said.

The consumer price inflation slowdown continued, with headline inflation slowing to 4.6% y/y in July (June: 5.1%). Sarb lowered interest rates for the first time in five years in July, but GDP growth concerns remain after the economy slipped into a technical recession in Q1. Although businesses are in good financial shape, SA’s experiencing an investment recession due to a lack of confidence, Lings said.

“With an investment recession it is going to be difficult to grow this country in terms of adding jobs, because businesses are not expanding.

“South Africa is … trapped in a lowgrowth environment caused fundamentally by a lack of confidence.”

Lings said SA’s poor economic performance can’t be explained by global events, but are a culmination of internal factors systematically chipping away at confidence. “… the politics of this country is destroying the confidence of this country.”

Given the improved outlook for the world economy, SA should be growing between 2.5% to 3%, but is only expected to expand around 0.6% or 0.7% this year.

If consumer confidence remains under pressure, retail sales will likely remain sluggish.