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Johannesburg – The credit downgrade is not all doom and gloom, as it can present business opportunities for artisans, said economist Mike Schüssler.
Schüssler was speaking about the impact of the credit downgrade at the UJ Convocation Leadership seminar on Monday.
Ratings agencies Standard & Poor’s and Fitch downgraded South Africa’s sovereign credit rating to junk following a midnight Cabinet reshuffle at the end of March which saw former finance minister Pravin Gordhan being replaced by former home affairs minister Malusi Gigaba.
Among the reasons given by the ratings agencies for the downgrade was policy uncertainty.
Schüssler unpacked how this uncertainty has a bearing on business and consumer confidence.
Schüssler suggested that it is unlikely the prime rate, to be announced later this week, will come down. This means consumers will have to pay more to borrow. “There’s a 70% chance there’s no decline.”
The higher cost of borrowing will impact decisions to take on loans for vehicles and houses, explained Schüssler. “Car sales have dropped… People aren’t going to show days for houses anymore,” he said.
READ: Junk status: Hard times ahead for consumers
If fewer houses are being built, it will impact business for architects and even surveyors in the industry. This filters down to furniture sales and other businesses in the sector. On the flipside, this could also present an opportunity for maintenance workers, electricians and plumbers to fix older items at homes, he pointed out.
A similar picture can be seen in car sales. With fewer new car sales, people will be holding on to their older cars for longer, creating a demand for mechanics to repair vehicles, said Schüssler.
Schüssler added that consumers may use the time to pay off debt, making the downgrade substantially “less harsh”. By the time consumers bounce back, it is likely that the growth rate will also be higher. Even though retail and car sales are lower, the recovery will be greater, explained Schüssler.
Broken promises
As for businesses, Schüssler explained that those who accompanied Gordhan on previous investor roadshows may feel that promises by the government have been broken. This uncertainty may influence business decisions to take on bigger projects, as they feel they do not have the support of the government.
Businesses want certainty, he reiterated. As a result there will be a “lull” in big projects that are undertaken. This in turn will impact job creation.
ALSO READ: Business confidence to take huge knock – economist
Businesses will look into cost containment. Businesses try to find ways to do the same stuff for cheaper, like upgrade machinery.
Ultimately, the most competitive businesses are likely to survive in a difficult environment where other businesses will fail and close down, he said.
