The SA Reserve Bank will likely cut the repo rate by about 25 basis points at its Monetary Policy Committee meeting in July and then keep rates flat for a while, Nicky Weimar, senior economist at Nedbank, said on Wednesday.
In her view, such a rate cut might lead to some consumer spending which could help to “keep the wheels turning” of the SA economy.
According to Weimar, the SA economy has been caught in a slow, unrelenting squeeze since 2012 and was “hit on all fronts” in the first quarter of this year.
Weak business confidence
“Households are strained and cutting back on spending, and there is weak business confidence and policy uncertainty. In essence, SA is in a situation where all sources of demand and potential sources of growth faltered,” she said at the annual conference of the SA Property Owners’ Association (SAPOA).
“If you look at essential sources of demand in the economy, then we see all of them have been drifting sideways and down. SA’s economy is in a weak position and still losing momentum.”
Regarding where the drive for future economic growth for faster job creation in SA could come from, Weimar it certainly cannot come from heavily indebted government.
At the same time government can certainly try to spend money better, bring policy certainty and create an environment for the private sector to thrive, she added.
As for the potential for fixed capital formation to drive faster economic growth and job creation, Weimar said President Cyril Ramaphosa understands this, which is why he started the drive for expansionary investment over the next five years.
However, in her view, the SA government is not able to accelerate infrastructure spending, so it will have to get the necessary investment from private companies.
Private companies would have to be convinced that the return on their investment would exceed the expected risk by an attractive margin. For that they want to see policy certainty and structural reforms to reduce production costs, according to Weimar.
‘A bit of a gamble’ for investors
“SA already looks like a bit of a gamble for investors. Inequality breeds instability and populism, as we have to some extent seen in the last election. There has also been the surge in state capture, so government service delivery deteriorated, and two ratings agencies already see SA as junk,” said Weimar.
“It takes a brave person to put billions into a country if you do not know how property rights might change. So even on that front SA does not look good to investors.”
In her view, SA must deal with the labour market, red tape and the cost of production.
“Politically it is difficult to sell SA and we believe investors will rather wait on the side lines for clarity. So, we believe fixed investment will remain weak, especially since SA does not have a cost-effective and reliable source of energy.”
At his State of the Nation address on Thursday, President Cyril Ramaphosa said that, of the R300bn of investments pledged at his inaugural investment conference in 2018, over R250bn worth of projects had entered an implementation phase. A second SA Investment conference would be held from November 5-7 in 2019, he added.
He also pledged to improve ease of doing business and cut red tape.