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Cape Town – South Africa’s economy is in a “in a bad place” and this trend is likely to continue over the next five years, FNB chief economist Sizwe Nxedlana said on Thursday at the MSCI South Africa Real Estate Investment Conference in Cape Town.
Gross domestic product (GDP) growth between 2015 and 2019 is expected to be the lowest since the Second World War.
“It is critical, however, to appreciate that this weak growth is not only happening in SA. Countries like Brazil and Russia have been in deep recession for a few years,” he said.
The International Monetary Fund (IMF) also expects significant weakening in GDP growth in countries like Nigeria.
Nxedlana said there are four major factors currently impacting the income statements of commodity-based emerging market countries like South Africa. These are the slowdown in China, which is associated with a decline in commodity prices, volatility of capital flows to emerging markets and the impact of the drought in southern Africa.
Sarb close to end of rate hikes
However, he added that weak economic growth, coupled with fading inflation pressures could bring the SA Reserve Bank (Sarb) close to the end of its rate hiking cycle.
In his view, weak growth and fading cost push-pressure will lead to lower inflation over the next two years.
“From 2017 we should see a significant deceleration of inflation and we think Sarb is probably at the end of its rate hiking cycle,” he said.
Brexit - a side show
As for the issue of Brexit, he said it turned out to be less of an issue for emerging markets than the other major factors and is basically just “a side show” for SA.
In his macro-economic overview, Nxedlana described SA as having two economies - the haves and the have nots. SA is showing muted employment growth, weak growth in credit extension, particularly to households, and low consumer confidence. However, wage growth and household wealth appear to remain resilient.
At the same time persistently weak business confidence is holding back fixed investments by the private sector.
“Our untidy political arrangements over the past four to five years have hurt the country. People would then rather be defensive and invest offshore. The consequence of low fixed investments locally, is low production, so we are not getting income or volume compensation. Less spending also means fewer imports,” he explained.
In his view, what the SA economy needs is to get more fixed expenditure going. However, he does not think this is likely to happen.
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