Analysts and economists have mixed views on the state of SA’s economy, with most polled in an IOL poll arguing SA is not heading for a recession.
However, all economic experts agree SA is in for a sustained period of sluggish growth. The economy grew at 1.3% in the first quarter, and is predicted to hit 2% for the full year. However, slower manufacturing growth rates mean this level is not likely to be attained.
On Tuesday, economist and chief strategist at Investment Solutions, Chris Hart predicted that a recession would hit the country within the next year because of issues such as low interest rates and expenditure threats.
This, he says, could leave the country in a solvency crisis, similar to the one Greece is experiencing,. Hart added the country is already deeply in debt, at a ratio of about 50% of gross domestic product, and cannot afford to take on more loans. He noted the debt level is the same as it was in 1994. “South Africa is at the brink of a solvency crisis.”
In the next four to six years, Hart anticipates SA having to borrow money from the International Monetary Fund if it continues down this self-inflicted path. Borrowing capital, however, will come with stringent conditions, he added.
An analyst, who asked not be named as he is not an economist concurs with Hart, noting a recession is “not impossible” as the country needs a confidence boost.
Earlier this month, the the South African Chamber of Commerce and Industry said South Africa’s Business Confidence Index had fallen to its lowest level in 16.5 years.
The analyst says SA business has faced “endless wrecking ball” actions from government, such as the recent Home Affairs rules around parents needing to travel with their children’s full birth certificates, which is stifling tourism.
However, he notes, there is an underlying resilience to the economy as SA has “great companies doing well globally,” such as MTN and SABMiller, which could do “great” in SA if given the chance.
Slow burn
Absa Investments analyst Chris Gilmour adds the country is “going nowhere slowly - a slow burn,” although he feels calling a recession is “a bit harsh”.
Gilmour notes SA is a “small, open economy that relies heavily on the global economy playing ball as far as economic growth is concerned”. He adds the country is “shooting ourselves in the foot” by doing things like spending R1.2 trillion on nuclear-powered electricity generation, at a time when SA can hardly balance the books.
The consumer is keeping this country afloat as far as economic growth is concerned, but this cannot last forever, says Gilmour. Consumer spending accounts for about 60% of gross domestic product.
Gilmour adds manufacturing is not adding any value to the economy, and neither is mining. “If consumer spending were to falter, we could conceivably tip into recession. But this is not our base case, so far.”
Warwick Lucas, chief investment officer at Galileo Asset Managers says “its definitely clear that the economy is in a weak spot”. He says the country will be facing tighter fiscal and monetary policies, which shows supply-side issues in the economy.
Lucas adds interest rates could increase by as much as a percentage point, which means the man in the street will not be able to increase consumption, and will watch “the value of his residual property bump along going nowhere”.
However, he says, the weak rand will act as a shock absorber, fending off a recession.
Econometrix MD and senior economist Rob Jeffery concurs SA is not heading to a recession, but says SA is heading for a “long period” of slow growth. He says this will be the situation until the country’s policies give business more confidence.
“I can’t see anything that is going to push up the growth rate at the moment. You cannot have consumption-led growth when we already have high debt.”
IOL