Weekend Argus (Saturday Edition)
Influence of ANC elective conference will last a decade
ECONOMIC WEEK AHEAD
THE leadership battle at the ANC elective conference which started yesterday will dominate economics in the week ahead
The result has the potential to set South Africa’s economic course for more than a decade because the winner is likely to be SA’s next president from at least 2019 for two five-year terms.
There is a possibility the winner will serve out the rest of Jacob Zuma’s term as president as well. While there are a number of candidates for the position, only two contenders, Deputy President Cyril Ramaphosa and former AU Commission chairperson Nkosazana Dlamini Zuma, have a realistic chance of winning.
In terms of media coverage, Ramaphosa, as a businessman, is favoured by the financial markets and this should boost consumer and business confidence, assuming this is followed by a credible budget in February that recommits to fiscal consolidation. This may be enough to prevent a Moody’s credit rating downgrade to sub-investment grade, as Moody’s said last month that it would review South Africa’s credit rating within 90 days.
A win by Dlamini Zuma, Zuma’s former wife, is likely to have the opposite impact on markets as it will be seen as a continuation of the current regime and confidence will be dented, with a significant possibility of further credit rating downgrades and SA’s exclusion from the Citibank World Government Bond Index. This could see an outflow of some R150 billion as overseas asset managers are forced to sell, driving up the government’s borrowing costs and weakening the rand.
The downgrade fears have been prompted by October’s Medium Term Budget Policy Statement, which saw the National Treasury increase its fiscal deficit forecast for this fiscal year to 4.3% of GDP from the 3.1% forecast in the February Budget. Finance Minister Malusi Gigaba said the increase in the fiscal deficit was due to a R50.8bn revenue shortfall, as well as costly bailouts to struggling state-owned enterprises such as SAA.
We also have the October leading indicator on Monday and the November steel production data on either Wednesday or Thursday. October tourism data is due on Tuesday and the November BankservAfrica Disposable Salary Index is also due sometime during the week. The composite leading business cycle indicator rose by 1.2% month-on-month (m/m) in September after a dip in August. This followed a jump in July after a series of monthly declines from February. The leading indicator is supposed to forecast economic activity six months ahead.
Xenophobia and the strong rand is slowing tourism growth with only a 2.2% year-on-year (y/y) increase in August after a 4.8% y/y gain in July. The spate of terrorist attacks overseas could boost numbers from the US and Europe and this could be reflected in the October tourism data.
Steel production grew by 5.9% y/y in October to 566 000 tons after a 9.0% y/y gain in September to 556 000 tons and we should have another y/y increase in November. The increase for the third quarter was 8.2% y/y compared with a 4.1% y/y decline in the first half of the year. This suggests that second-half GDP growth will be far stronger than in the first half, when we achieved a 1.1% y/y increase.