South Africans could perhaps take comfort from the fact that 56 percent of the countries that Moody’s Investors Service tracks are also stuck in a negative outlook rating. “Negative outlook” is a sort of twilight zone of the banking world.
For those you who are interested in the “broad sweep of history” type of stuff, you need look no further than the list of the 68 countries whose banking systems come under Moody’s scrutiny, to see just how dramatically things can change.
Apart from the UK and US, which are clinging to a stable outlook, all of the old world “respectables” have been branded with the negative outlook label.
This, of course, is courtesy of the meltdown in the euro zone. And it’s not just the seriously crisis-ridden countries such as Greece, Cyprus, Spain, Portugal, Italy and Ireland that have the negative stamp.
It is also the “goody-two-shoes” countries such as Finland, Denmark, the Netherlands and even Germany that are damned to that territory.
This no doubt reflects the scientific principle that “if you lie down with dogs, you will get up with fleas” or, as they might prefer to describe it in the sophisticated world of banking, what we have here is a severe case of financial contagion.
Azerbaijan, Bolivia, Colombia, Uzbekistan, Oman and Peru are just some of the 28 disparate countries whose banking systems have received “stable outlook” stamps of approval from Moody’s.
The Philippines is the only banking system that has scored a positive outlook. Not too long ago these countries might have seemed more appropriately ranked as needy World Bank “clients” on the verge of some or other crisis, but now they can afford to look a little askance at the former banking powerhouses and tut-tut at their profligate ways. But in a fragile and highly contagious financial environment, that may not be advisable.
For South Africa there is little chance of an improved rating before next year’s election. Moody’s notes that our rating outlook has been held at negative partly because of the continued tensions over the government’s economic policy orientation within the governing alliance and the increasing uncertainty on this front ahead of next year’s election.
Slow economic growth in South Africa is bad news for policymakers with ambitious job targets. Economic Development Minister Ebrahim Patel’s New Growth Path, launched in November 2010, aimed to create 5 million jobs over the next 10 years and halve the unemployment rate, which stood at 24 percent at the launch.
However, the situation has since deteriorated with unemployment rising to more than 25 percent.
Growth is slowing – to an estimated 2 percent this year – on global and domestic factors. And the outlook for jobs has deteriorated further.
Bank of America Merrill Lynch said: “Aside from the headwinds from lower economic growth, a key issue is whether productivity growth is routinely higher or lower than real wage growth.
“While the picture is not completely clear cut, there has been a tendency for real earnings to outstrip productivity since 2007. By contrast, between 2000 and 2007 it appears that labour was more attractively priced. South Africa is faced with an immediate policy challenge: either productivity levels rise or greater nominal (and real) wage restraint is required.”
Neither is on the agenda.
A further constraint on growth is the shortage of electricity.
The bank said: “To achieve a sustainable 3 percent growth rate over the next five years, electricity consumption would need to rise a cumulative 25 percent.” The bank said Eskom planned to meet such an increase in consumption by 2018.
But it noted: “With little new supply expected until late 2014 and, more importantly, ongoing uncertainty over the timing of additions to the grid, we believe that economic growth in 2014 may struggle to get above 3 percent.”
People approaching the end of their working lives are grappling with longevity risk – the risk of living too long. As economies develop and the quality of life and health care improve, life spans are increasing – a development that should be cause for celebration.
However, the longer lifespan brings the possibility that retirees will run short on their pension provisions, which takes some of the joy out of the golden years.
While this is a problem on a personal level, the trend also poses risks to financial markets – the risk to institutions of paying out on pensions and annuities longer than anticipated. The risk has given rise to “longevity risk transfer markets”.
In comment on its website, the Bank for International Settlements (BIS) says: “Longevity risk is significant when measured from a financial perspective.”
The BIS advises policymakers to ensure that institutions taking on longevity risk, including pension fund sponsors, “are able to withstand unexpected, as well as expected, increases in life expectancy”.
We are all familiar with the idea of a sudden decrease in life expectancy in the event of pandemics such as the spread of HIV/Aids, which dramatically cut the lifespans of many populations a decade ago.
But it is difficult to imagine an unexpected increase in life expectancy – other than the discovery of the mythical elixir of life. In the normal course of events, a further extension of the human lifespan could happen gradually, the cumulative outcome of many different events.
There is the possibility that a breakthrough in the creation of synthetic organs could see the creation of a bionic generation. This could produce a sudden population bulge at the top of the age spectrum. Unions, which traditionally oppose any increase in the retirement age, may have to re-conceive the problem.
Edited by Peter DeIonno. With contributions from Ann Crotty and Ethel Hazelhurst.