Given South Africa’s current economic scenario, there is no viable catalyst that can lift the country’s medium-term growth prospects out of the moribund 2% that appears to be in the offing. That’s the view of Luke Doig, senior economist at Credit Guarantee Insurance Corporation, who questions whether even this mediocre target is attainable.“Hopefully this year will not be referred to as ‘R20/£’ or ‘R13/$’, because this may invoke sharply higher interest rates.” Doig also pointed to the fact that the business confidence indicator (BCI), compiled by Rand Merchant Bank (RMB) and Stellenbosch Uni’s Bureau for Economic Research (BER), had averaged just 45 since the beginning of 2010. “This,” he added, “reflecting the myriad challenges facing SA business. Confidence both among consumers and businesses alike is unlikely to see a strong and sustained move above 50 until the second half of 2016.” He also suggested that this “implies that growth may remain anaemic” until electricity shortages become more manageable. And the prospects of achieving this manageability soon are slim. While retail sales have risen 2.8% in real terms in the first five months of this year compared with the 2.5% growth seen in the same period last year, Doig pointed out that the benefits from the fuel dividend had been rapidly eroded. “Thankfully,” he added, “the recent renewed weakness in Brent crude oil prices has seen large over-recoveries emerge for both diesel and petrol, which resulted in fuel price cuts in SA of around 50 cents per litre for petrol and almost 75 cents per litre for diesel in August. This will help alleviate the pressure on loadshed manufacturers as well as on overall transport costs.” The risk of rising inflation amidst currency weakness (“A spike to R13.50/$ cannot be ruled out,” said Doig) could well see the SA Reserve Bank (SARB) raising rates by a further 1%. While this presents opportunities to exporters, Doig stressed that global demand remained weak. “SA exports have grown by just 3% in the first five months of the year, despite May’s impressive 13.6% year-onyear performance; and the impact of lower revenues for oil-exporting African countries reflected in the mediocre growth in exports to the region of just 1.1% year-to-date May 2015. Can exporters rise to the challenge and erase the year to date trade deficit of R29.9 billion, thereby reducing the current account deficit further?” Strike action is another growth inhibitor.
“While this has been muted to date,” said Doig, “rumbling across several sectors is growing. “Against this backdrop, we would argue that payment default risks will require careful monitoring. “In the absence of further shocks to global demand or domestic supply issues, we may be able to eke out growth of 2%. But risks are skewed to the downside. And, as Philander Chase Johnson said in 1920, ‘Cheer up, the worst is yet to come’.”