Risk appetite easing downgrade impact on SA - economist

Cape Town - The impact of SA's ratings downgrades would have been a lot worse if it was not for the positive risk appetite in the world, Nicky Weimar, senior economist at Nedbank said on Wednesday.

She spoke at the annual convention and expo of the SA Property Owners Association (SAPOA) taking place at the Cape Town International Convention Centre.

"If we can avoid further damage, then the first quarter of 2017 could have been the lowest point for the SA economy. Luckily world markets are in a risk-on phase and emerging market risk appetites are the key drivers of the value of the rand," said Weimar.

"Most forecasters are still counting on faster global growth due to faster growth in the US, resilient growth in Europe despite Brexit and also in China. That should help commodity prices and if these start to rise then we should see SA benefitting."

That is why she believes if SA can minimise political harm, one could see recovery starting. It is, however, very important to get consumers and business confidence up again otherwise she thinks 2017 will just be yet another year wasted for SA.

"The weakness in the SA economy is widespread with the sharpest recent declines in manufacturing, power and water and domestic trade. Domestic trade is particularly alarming as it relies on consumer spending. It shows how battered SA consumers are," said Weimar.

"All sources of demand faltered in 2016 and early 2017. Fixed investment activity remained weak, which is especially worrying. It tells us neither state-owned enterprises (SOEs), government, nor the private sector is able or willing to take risk and raise capital. So how will be able to grow the economy?"

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In her view, a variety of structural factors and policy choices eroded SA's international competitiveness. International factors that caused the greatest harm to the SA economy over the past few years were the El Nino drought and the global commodity price slump.

"If we, however, are brutally honest with ourselves we will admit that the greatest damage was actually done by a series of political missteps and revelations of widespread deeply situated corruption. Politics and corruption have been SA's downfall - from Nene's firing to the State of Capture Report to the Cabinet reshuffle. The change in leadership at National Treasury was the final straw to break the camel's back and led to downgrades," said Weimar.

"The initial financial reaction was limited and brief after the downgrades, but the true pain of our new ratings will be felt over time. Confidence is one of the key reasons we are finding ourselves in this state, especially due to a lack of spending."

Going forward she said it is a tricky question whether SA's darkest hour has passed as so much will depend on how the political situation will unfold and what  the impact will be on (further) downgrades.

"To avoid further damage Treasury has to do its job of restoring confidence, have a less confrontational stance towards business and look for win-win and better economic policies," said Weimar.

"Government would have to remove itself as the pillar driving the economy and free up the market to drive employment creation and more. Government has to tackle corruption and restore good governance at SOEs as these are responsible for bulk infrastructure without which the private sector cannot function."

She says the nuclear deal in any form would be a negative and SA could face the risk of its rand denominated debt being downgraded to junk status, which would be disastrous for the country.

"SA also relies on portfolio capital inflows and without these we cannot sustain growth," said Weimar.