Speaking at an Old Mutual Investment Group quarterly briefing, senior economist Johann Els said although GDP growth of between 0% and 1% is expected in the second quarter, there were worries actual growth may be “very close to 0%”.
This compares to growth of 1.3% in the first quarter and 4.1% in the fourth quarter of last year. Second quarter GDP figures come out later this month. While some are concerned the South African economy may be heading for recession (technically, two consecutive quarters of negative growth), bumping along the zero line is almost as bad, he said.
But a few economic factors have improved since 2014. Els said the inflation outlook has moderated and he only expects one more interest rate hike of 25 basis points during the current cycle, which will bring the prime lending rate to 9.75% by the end of 2015.
“It is going to be a mild cycle, which will help consumers.” Although the 2003 to 2007 boom in consumer spending won’t be repeated soon, it is unlikely consumers will experience the recessionary conditions of 2008.
Els said in the absence of a global recession and a deep local recession, they don’t expect significant economy-wide job losses. While sectors such as mining will shed jobs, it is unlikely disposable income growth will collapse as it did during the previous downturn.
The current account deficit is forecasted to narrow to 4.3% of GDP this year and 4% in 2016. This compares to 5.8% in 2013 and will help to stabilise the rand, he said. In recent weeks the rand has traded at its weakest level since 2001 against the dollar.
Els said the rand has been amongst the weakest currencies during this period and finds itself in the company of Brazil, Russia and Turkey. If the exercise is repeated from January 2014 onwards, the rand is in more or less the same position as the currencies of New Zealand and Australia, which have been hurt by a stronger dollar and weak commodity prices.
“We are not out of line. You can make an argument that maybe all the negatives in the South African economy have been priced into the currency.”
However, over the medium to longer term the rand is still expected to weaken, given the inflation differential between South Africa and its trading partners. In the short term there is a possibility that the currency may stabilise somewhat once the US Federal Reserve starts hiking rates, he said.