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South Africa Outlook Grim

There is no confidence among consumers or, more  worryingly, businesses.There is no confidence among consumers or, more  worryingly, businesses.

South Africa needs bold structural reforms to boost the ailing economy as there is limited room for monetary and fiscal stimulus, the Organization for Economic Cooperation and Development Economic Survey showed on Monday.

Africa’s most industrialized economy entered recession in March. The country is also struggling with a high unemployment rate and credit downgrades by two of the top three ratings agencies, based on the economic and political turmoil, have dented business and consumer confidence in South Africa, Reuters reported.

“Reviving economic growth is crucial to increase well-being, job creation and inclusivity. As there is limited room for monetary and fiscal stimulus, bold structural reforms, supported by social partners, are needed to unlock the economy,” the Paris-based OECD said.

The government has developed a 14-point economic strategy to stimulate growth, released by Finance Minister Malusi Gigaba on July 13, but the plan has received a lukewarm reception from investors.

Critics say the plan, which included the possible sale of assets and partial privatization of state-owned firms, was not enough to restore business confidence and stimulating private sector investment. Ratings agencies have also warned of further credit ratings downgrades.

The South African Reserve Bank last week halved its 2017 growth forecast to 0.5% and cut the benchmark lending rate for the first time in five years to help the ailing economy.

It has been clear for some time that all is not well with the South African consumer. Or, indeed, the economy. Government spending has all but frozen and consumer spending is not going to paper over the cracks. Practically every recent data point has been negative, but these are generally backward looking. Those that aren’t—like confidence indicators—are even more dire.

Right now there is no confidence among consumers or, more worryingly, businesses. Spectacular own goals like the temporarily halted Mining Charter have ensured that foreigners eager to invest in the mining sector look elsewhere.

Disposable incomes have contracted (in some cases, disappeared altogether) and this is unlike the uncertainty of 2007 and 2008.

South Africans have a grim outlook of their economy right now. Consumer confidence has worsened since last quarter, extending what is the longest pessimistic outlook since the survey was first launched in this country in 1982.

 

 

 

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