Crunch time for stumbling SA economy
Growth and GDP data backs up bleak view of economists ahead of S&P ratings decision
THE chances of South Africa slipping into a recession later this year remain high and with that will come the loss of at least 200 000 jobs, a situation that will be exacerbated if the country’s international credit rating is downgraded, economists forecast this week.
Their predictions coincided with the release of two important sets of data: the Reserve Bank’s leading indicator, which showed a contraction in annualised growth for the 29th consecutive month; and Stats SA figures for revised GDP estimates from the production and expenditure sides of the economy.
Standard Bank chief economist Goolam Ballim said jobs were at risk in the industrial and retail sectors. This would be the result of a cocktail of tighter financial conditions over the past few quarters and a potential downgrade, “which will slowly induce economic stricture and likely result in recession in the tail-end of 2016 to the early part of 2017”.
Standard Bank expected GDP growth of -0.3% this year and 1.1% in 2017 if South Africa is downgraded. But in the case of a reprieve from S&P Global Ratings, economic growth would be 0.6% this year and 1.2% in 2017.
Ballim said a quarter of the economy was already in contraction mode and close to half was fast slowing and well below 2% real growth.
Technically, a recession is two consecutive quarters of negative economic growth as measured by a country’s GDP.
S&P — which met government, business and labour representatives two weeks ago — will reveal the outcome of its review of South Africa’s economic health on Friday.
Economists say S&P could downgrade the country’s credit status to sub-investment grade now or in December — after the National Treasury presents its medium-term budget policy statement in October.
The timing of the release of JOBS AT RISK: Goolam Ballim the revised GDP estimates this week — which, using a new method of calculation for the first time in 70 years, showed both the production and expenditure sides of the economy — drew scepticism from economists, especially since the estimates were published a week before the expected S&P announcement.
The data showed that GDP for the last quarter of 2015 was revised down to 0.4% from 0.6%, which would improve the base against which GDP for the first quarter of 2016 was calculated and “elevate seasonally adjusted and annualised growth for the first three months of this year”, said Lefika Securities economist Colen Garrow.
Garrow said the adjustments raised questions about the accuracy of data used to measure GDP for the first quarter of the year.
Standard Bank economic strategist Kim Silberman said S&P placed great emphasis on the structural nature of real GDP per capita growth.
However, the bank’s research showed that South Africa’s per capita GDP growth was likely to remain structurally negative until potential GDP growth rises to above 1.7%.
Silberman said that although the upward revision to GDP was helpful, it indicated that economic growth was likely to continue lagging population growth and this may not “provide a basis for S&P to argue that South Africa’s GDP per capita growth rate is structurally investment grade”.
South Africa’s potential for GDP growth was about 1.5% and slipping, said Ballim. To achieve the 5% growth required by the National Development Plan, the country needed to raise this by providing a political climate that is benign and predictable and an environment for business investment.
Electricity constraints, labour unrest and political uncertainty had cost the country R290-billion in economic output last year and R1-trillion since 2008, although Eskom appeared to be having fewer problems and industrial action had diminished, he added.
But Nedbank economist Busisiwe Radebe, who expected economic growth of 0.2% this year and 0.9% in 2017, pointed out that business confidence remained low and therefore “fixed investment in the economy — for which the private sector is 60% responsible — would struggle”.
Elna Moolman, economist at Macquarie Group, forecast 0.7% growth this year and 0.9% next year. Moolman said many markets had already priced in a downgrade. Further economic shocks would compound the effects of the drought, general weakness in demand and low commodity prices, reducing the availability of fixed investment.
“If we get this downgrade, I’ll be very concerned about the downside risk that it would pose even to current expectations for economic growth,” said Moolman.
A quarter of the economy is already in contraction mode
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