Finance Minister Tito Mboweni faces a difficult time in the next two months trying to work out SA’s budget on the back of the World Bank expectation of only 0.9% conditional growth, and Stats SA’s revelation November’s manufacturing was down by 3.6% compared to November 2018.
And SA would be lucky to achieve the World Banks forecast, chief economist at the Centre for Risk Analysis Ian Cruickshanks said.
Eschewing the ANC’s birthday bash Mboweni, according to his Twitter account, spent much of the day reminiscing about his school days while Cruickshanks pondered if SA wasn’t rather in a depression than facing recession.
“Forget about reaching 0.9%,” Cruickshanks said bluntly.
“The World Bank has a history of being over optimistic about their GDP projections for South Africa. Treasury and the South African Reserve Bank last year predicted 0.5% growth.”
Cruickshanks own prediction ranged from -0.5% to 0% growth.
“Look at mining, look at manufacturing. Agriculture may be saved by these rains, but they only arrived at the end of November so it’s going to be a non-contributor, we’re not in the doldrums, we’re in the nasties.”
Once the biggest economy in Africa, the World Bank forecast said SA would “edge up to 0.9% [from 0.4% in 2019] assuming the new administration’s reform agenda gathers pace, policy uncertainty wanes, and investment gradually recovers”.
Demonstrating the need for a stable Eskom, the bank put the utility at the front of SA’s woes.
“Increasingly binding infrastructure constraints – notably in electricity supply – are expected to inhibit domestic growth, while export momentum will be hindered by weak external demand,” the forecast predicted.
Only two countries are expected to perform worse than SA in 2020; Lesotho (0.7%) and Sudan (-1.4%).
Old Mutual Investment Group Chief Economist Johann Els said a Moody’s ratings downgrade was now more likely than ever by early next year, “unless the February budget moves the dial substantially”.
“Despite what we saw in the disappointing Medium-term Budget, expenditure cuts could still be on the cards, but they would have to be significant to make any kind of impact,” Els told the asset manager’s fourth quarterly media investment briefing in December.
“Treasury’s options for getting the Budget and SA debt under control include printing money, which is highly unlikely; allowing higher inflation, which is also highly unlikely; raising taxes, which is difficult in the current environment; selling assets, which is unlikely on a large scale and will take time; selling of spectrum, which will have a small impact and will take time; and then cutting expenditure and lifting growth,” Els said.
“Considering these options, cutting expenditure and lifting growth through structural policy adjustments remain Government’s most viable solutions.”
Moody’s Investors Services’ FAQ on the prospects for reform and fiscal outlook noted SA’s (Baa3 negative) economic growth and public debt trends had “continued to deteriorate over the last two years as stronger than anticipated socio-political constraints have weighed on reform momentum”.
“We expect debt levels will continue to rise rapidly unless the government is able to implement a substantial fiscal adjustment,” the December report stated.
The prospects for structural economic improvements were “very limited”, Moody’s analysts noted.
“Low job creation and persistently weak confidence which have translated into lower investment are the key drivers of weak economic growth in South Africa.
“Although President Ramaphosa has introduced a number of reform measures to address these issues, their scope has been diluted and pace slowed by vested interests and deep socioeconomic inequalities,” the credit rating organisation warned.
“The window for the government to accelerate reform momentum (and generate economic and fiscal improvements) will narrow as the president’s term advances. … We forecast medium-term growth of 1%-1.5%, which is barely in line with population growth.”
Stats SA reported yesterday nine of ten manufacturing divisions reported negative growth rates over this period for November 2019.
It found some of the largest negative contributions came from:
- wood and wood products, paper, publishing and printing (-9,3%);
- motor vehicles, parts and accessories and other transport equipment (-10,0%);
- textiles, clothing, leather and footwear (-13,3%).
“The largest positive contribution was made by the petroleum, chemical products, rubber and plastic products division (5,8%),” Stats SA stated.
Els added it would be difficult to make meaningful expenditure cuts without addressing the wage bill.
“Limiting growth in the Wage Bill is probably going to be easier that cutting jobs or freezing wage increases. This could lead to a lower budget deficit fairly quickly. Limiting growth to 4% per annum could mean cumulative savings of R104 billion and a deficit of -5.1%, compared to the Mini Budget target of -5.9%,” Els said.
“How likely is this to happen, however?”