Business Unity South Africa (BUSA) notes the 2,2% growth recorded in the third quarter (Q3) of 2018. However, business cautions that this is a false positive because the underlying assumptions indicate that key sectors of the economy remain in distress.
The year-on-year (1,1) and nine-month (0,8) growth rates recorded in Q3 are of concern, as they signal that the economy is not picking up pace fast enough and point to a less than 1% annual growth rate for 2018. That is not enough for the country to lift itself out of the current economic slump it is experiencing.
The contractions recorded in mining, construction, electricity, gas and water, and gross fixed capital formation are warning signs that it is business unusual for SA Inc. All these sectors will be critical in ensuring that some of the goals set out in President Cyril Ramaphosa’s stimulus package are realised, particularly construction with reference to the proposed infrastructure fund. But the continued slump in construction brings into question how the infrastructure fund will be mobilised effectively to achieve its intended aim of sparking momentum in the economy.
The declining rates of gross fixed capital formation are also of concern as they underscore a lack of appetite to invest in the economy, which is a catalyst for growth. There is a correlation between gross fixed capital formation and sustainable economic growth. It is in that context that the low levels of gross fixed capital formation are worrying.
Sovereign Credit Ratings
In its latest monetary policy statement, the Reserve Bank revised down its 2018 growth forecast for the country to 0,6% from 0,7%. The Central Bank’s move was in line with the actions of the International Monetary Fund and the World Bank, despite a prevailing positive outlook for global economic growth.
Moody’s Investors Service, S&P Global Ratings and Fitch Ratings have all warned that the country’s future sovereign credit ratings hinge in its ability to grow the economy. South Africa is hanging on to its last-remaining investment grade sovereign credit rating by a thread, and business cautions that time is running out for the country to act decisively on required reforms to turn the situation around. BUSA urges that the moderate growth documented in Q3 does not lull social partners but spurs them on to take the urgent and necessary steps on the economy.
“Any bit of growth is welcome, but we caution against an unrealistic reading of what is an urgent situation in the economy. We know what the issues are and the time for talking is over, we have entered a phase where we need to act swiftly and decisively and make the necessary changes, reforms and interventions required on the economy,” said BUSA President Sipho M Pityana.
“We are particularly perturbed about the situation at Eskom, with reference to the introduction of power outages and their negative impact on the economy, as well as the power utility’s dire financial position. We cannot afford a repeat of 2008,” said BUSA CEO Tanya Cohen.
There is no fiscal space to bailout Eskom, or any other SOE, amid rising public sector debt levels and a runway state wage bill. We are extremely concerned about National Treasury’s ability to contain the Budget.