JOHANNESBURG - THE COUNTRY’S battling economy yesterday received a shot in the arm when business confidence rebounded in the third quarter from its worst slump on eased Covid-19 restrictions, but the Institute of International Finance (IFF) warned that more needed to be done to revive it.
The IFF said in a note that the government needed to implement fundamental macroeconomic reforms to protect the economy from vulnerable shifts in the market sentiment.
The Washington-based IFF said the government had to come up with a credible fiscal consolidation plan to ease investors’ concerns over debt sustainability. It said the plan should entail substantial cuts to non-interest spending.
“A failure to implement fiscal consolidation, together with lower demand from the domestic financial system, would leave authorities with no choice but to look for alternative ways of financing larger-than-targeted deficits - especially if foreign investors show no interest in increasing their positions,” the IFF said.
“One of those options are regulatory changes forcing local asset managers and pension funds to buy government bonds (so-called ‘prescribed assets’).”
Yesterday, Rand Merchant Bank (RMB) said its survey of local business, which is conducted with the Bureau for Market Research (BER), showed that the business confidence index rebounded to 24 points from an all-time low of five points in the second quarter.
The RMB/BER said all sectors recorded a rise in confidence readings, particularly in the retail, vehicle and wholesale trade sectors.
It said this boost was supported by a vibrant agricultural sector and a further recovery in international trade, which drove the increase in wholesale confidence.
RMB chief economist Ettienne le Roux warned that business sentiment still remained heavily depressed.
Le Roux said the extreme 51percent contraction in the gross domestic product (GDP) in the second quarter would have effects in the third quarter.
“The improvement in business sentiment could mean that the 51percent annualised contraction in GDP in the three months to June was the worst point in this cycle,” Le Roux said.
RMB/BER said these developments pointed to a much-improved outcome where the GDP could recover some lost ground, possibly increasing by an annualised rate of 20 to 25percent in the third quarter.
Investec chief economist Annabel Bishop said business confidence was still depressed overall, but only to a lesser extent, as the process of reopening the economy was very slow.
Bishop said such was the tentative nature of the green shoots of recovery.
“Economic activity is expected to continue to pick up each month this year on the previous month, and indeed each quarter on the previous quarter from the second quarter, with the green shoots strengthening into more robust economic activity in 2021 as household finances gradually strengthen,” she said.
PricewaterhouseCoopers (PwC) chief economist Lullu Krugel said the survey could fall in the fourth quarter, as it was conducted last month, ahead of the renewed onset of load shedding.
“PwC estimates that the negative impact of load shedding in 2020 will completely cancel out the positive impact created by interest rate cuts and payments under the Temporary Employer/Employee Relief Scheme,” she said.
BUSINESS REPORT