Guiding consumers since 2009

SA economic prospects decline amid unrest

By Staff Writer

Widespread labour unrest is exacerbating the country’s cyclical and structural economic imbalances, threatening to stop the recovery in private sector employment. It’s also set to worsen South Africa’s already sluggish growth, according to Rian le Roux, chief economist at Old Mutual Investment Group SA (OMIGSA).


Speaking at the OMIGSA quarterly press conference in Johannesburg on Tuesday, Le Roux said that he expects the recent disruptions in the labour market and weakening of the rand to result in moderately lower GDP growth, moderately higher inflation, and a moderately wider current account deficit. However, he does not expect it to impact interest rate prospects, assuming that the unrest is resolved relatively soon. He forecasted that interest rates will remain at current levels through 2014, but adds that they could be lowered should growth turn out to be much weaker than expected.


GDP drops


“We now expect GDP growth at around 2.3% for 2012 and 2.7% for 2013, down from 2.5% and 3% previously. At the same time, if the rand stays at around R8.75 versus the US dollar over the next 15 months (and other factors remain equal), 2013 inflation should average a little over 5.5% y/y, compared to our previous forecast of 5.2% y/y. However, higher wages will likely be partially offset by job shedding, limiting the impact o¬n inflation.


Finally, export losses due to lower mining production should widen the 2012 current account deficit approximately 5.7% of GDP, versus 5.5% previously. For 2013, the deficit should still narrow to 4.5%-5% of GDP as imports fall o¬n weaker local demand and the weaker rand, while exports find support from improving global growth,” said Le Roux.

Le Roux added that the wider deficit on the current account is contributing to the view of rising macroeconomic risks for investors. “Foreign investors have good reason to be concerned about the macroeconomic risks: Of 16 emerging markets, according to the latest forecasts from The Economist, South Africa measures dead last in terms of its combined current account and budget deficits at 10.8%, which is much worse than the second-worst market, India, at 10.0%.”


South Africa is not competitive


Le Roux pointed out that the current account deficit and high-profile labour unrest has also highlighted to the world the more serious structural issue of South Africa’s lack of competitiveness.  “While our overall ranking in the World Economic Forum at 52 out of 144 countries in its 2012/2013 Global Competitiveness Index is not too bad, we rank awfully lowly in some key areas such as the quality of primary and higher education, the flexibility of wage setting, hiring and firing practices, and pay and productivity were all ranked at 133/144 or worse. South Africa was ranked absolute last for labour-employer cooperation,” he said.


It is therefore not surprising, he said, that the rand has been one of the worst-performing emerging market currencies in the world since early 2011, with the primary cause a serious lack of export competitiveness.


Economic challenges must become a priority


Le Roux is not optimistic that conditions stimulating growth will improve significantly over the near-term.  “Hopefully we will not be seeing additional stimulus coming from current government spending – the budget deficit is still in danger territory at close to 5% of GDP and infrastructure spending needs to rise.  This can o¬nly occur if a tight lid is put o¬n current government expenditure.  Also we are not likely to get much stimulus above the 3% annual growth already coming from private consumer demand, due to little net employment growth,” he explained.


Le Roux said that he hoped the recent labour unrest, downgrades by rating agencies and the rand’s slump would make South Africa’s economic challenges a bigger priority on the government’s policy agenda. “We clearly have a labour absorption problem that needs urgent attention, which includes raising the country’s growth potential and re-thinking labour laws. Government infrastructure expansion is of critical importance (also requiring tight control over current spending), as is a clear intent by the government to restore business and foreign investor confidence through strong commitments to macroeconomic stability; fiscal prudence (including ruthlessly stamping out corruption); growth-enhancing reforms over a broad front; and dramatically improving public sector service delivery and accountability. There must also be a strong commitment to implement all of these speedily,” Le Roux concluded.

Recent Articles

Featured The bank took money from my account – is this allowed?

You’ve just deposited money into your account and suddenly you see a notification from your bank. Money has been deducted from your account to pay the outstanding debt that you have with the bank. Is this allowed?

How much does it cost to draft a will?

Having a Will allows you to determine who inherits your property when you die. If you die intestate, the government will determine how to distribute your assets. Many people die intestate because they don’t know how to draft a will or are intimidated by the costs of drafting one.

Is your home correctly priced for the current market?

The property market is typically in either one of two phases, a buyers’ market or a sellers’ market. According to real estate experts, we are currently in a buyer’s market. For this reason, it is important as a seller to correctly price your house to ensure interested buyers and a valuable sale in the end.

Fuel rewards programme – how to fill up on petrol and points

South Africa’s volatile economy has often meant that factors like the fuel price bear the brunt. This year alone the country’s fuel price has fluctuated by between R1.50 to almost R3, which has put increasing pressure on motorists. That said, many of the bigger South African brands have provided some relief by way of fuel rewards programmes.

Deals

Mowana Voucher Special

Price: From R1,099
When: Before 24 December 2019
Where: Johannesburg

Birchwood Hotel Christmas Gift

Price: R959
When: Between 15 December 2019 to 1 January 2020
Where: Johannesburg

Burger & Lobster Lunch in 30 Minutes Special

Price: R99
When: Mondays
Where: Cape Town