Latest data show SA economy not in recession territory
FINANCE Minister Pravin Gordhan has made the case that SA is not in “recession territory” and the latest economic data coming out support his view.
The country’s current account deficit shrunk to 3.1% of GDP (R134bn), from 5.3% (R221bn), according to the Reserve Bank’s quarterly bulletin.
This is the lowest level documented in a year, and comes days after data showed that the economy grew faster than has been forecast in the second quarter.
The release of the bulletin coincided with Gordhan’s address to business people at the BDFM Investment Summit, where he said SA had a chance of avoiding a downgrade to subinvestment grade, or junk, in December.
Notwithstanding the positive economic growth and the current account data in the second quarter, much still weighs on the economy — this includes lacklustre business and consumer sentiment, depressed fixed investment levels, domestic political and policy uncertainty, and global developments.
Higher exports and lower imports, and South Africans receiving dividends for their offshore investments helped tip the current account deficit.
Asked whether there was a 50% chance SA would not be downgraded, Gordhan said: “Yes.”
Gordhan said the government had worked hard to create positive sentiment about the country among South Africans, international investors and ratings agencies by retaining and sustaining its fiscal credibility, despite low growth putting pressure on revenue and expenditure.
The finance minister also said that as he prepared to deliver his medium-term budget policy statement in October, he would attempt to stick to the deficit and debt numbers outlined in February.
The 3.3% growth recorded in the second quarter was unlikely to be sustained, but SA was not near recession. “We ourselves are not in recession territory; we have interesting small green shoots in different parts of the economy. If we nurture those shoots in the right kind of way … we can certainly get back to 2% and 3% growth over the next few years,” Gordhan said.
Johan van den Heever, head of economic reviews and statistics at the Reserve Bank, said the current account deficit might not be sustained at current levels in coming quarters, but it was unlikely to reach 5%, its worst level, which had been recorded in previous years.
An improved current account deficit is good for the rand.
Van den Heever based his outlook on the assumption that “a competitive rand” would support exports, which would continue to grow — albeit slowly. In addition, import growth would likely moderate because of tepid demand and economic growth.
Stanlib chief economist Kevin Lings said a slowdown in imports, coupled with improved exports, should translate into a sustainable improvement in the trade and current account deficit over the next year, which would hopefully ease the pressure on the rand, as well as tackle the concerns raised by credit ratings agencies.
We are not in recession territory; we have interesting small green shoots