De­cline in con­fi­dence a setback - Moody’s

The Star Early Edition - - BUSINESS REPORT - Siseko Njobeni

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.

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