What lies ahead for SA?

Dec 29 2015 07:30
Finweek Staff
Rian le Roux, chief economist at Old Mutual Invest

Rian le Roux, chief economist at Old Mutual Investment Group. (Picture supplied)

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While SA managed to avert a technical recession in 2015, 2016 will be a tough year, with a further slowdown in growth expected – even before President Jacob Zuma’s decision to axe former finance minister Nhlanhla Nene shook the markets and sent the rand to an all-time low against the US dollar.

The latest Reserve Bank forecast, released in November, expects growth of 1.4% in 2015 and 1.5% in 2016, recovering to a still pedestrian 2.1% in 2017.

The volatility in the exchange rate is of particular concern, the Reserve Bank warned at the time, and it remains to be seen to what extent a possible interest rate increase by the US Federal Reserve has already been priced into the rand/dollar rate.

(The Fed was widely expected to raise rates on 16 December, after finweek went to print.)

Colin Coleman, managing director of Goldman Sachs South Africa, is forecasting growth of 1.5% in 2016.

As a major exporter of commodities, low prices will continue to hurt the economy.

Goldman Sachs predicts that commodity prices will remain flat in 2016, with “no effective lift-off perceived for commodity prices in the next 12 months”, says Coleman.

Rian le Roux, chief economist at Old Mutual Investment Group, agrees, saying a stable US dollar, improved demand in China and more industry consolidation – which would take supply out of the market – will be needed before commodity prices will improve.

Other concerns that will continue to weigh on growth, highlighted by credit ratings agencies Fitch and Standard & Poor’s in December 2015, include policy uncertainty, a lack of investor and business confidence and inadequate electricity supply.

Research firm Capital Economics warned in a recent research note that SA’s economic prospects “have seldom seemed so grim”, forecasting that growth will remain very weak in 2016.

“The poor performance of the mining and manufacturing sectors has left the economy overly dependent on retail sales to support growth. And with unemployment stuck at around 25%, debt elevated, and consumer confidence still near multi-year lows, we doubt that this is sustainable,” it said.

Capital Economics is expecting growth of around 1.3% in 2015, but a repeat of the strikes seen in 2014 (which included a record-long strike that halted platinum mines for more than five months) could push the economy into outright recession, it said.

This is an excerpt from an article that originally appeared in the 31 December 2015 edition of finweek. Buy and download the magazine here