Economist Cees Bruggemans says that finance minister Pravin Gordhan faces a mammoth task of re-calibrating the economy while avoiding junk bond status and recession in 2016.
In his latest newsletter, Bruggemans said that South Africa’s decline has been gradual: six years of deteriorating terms-of-trade; five years of less than half-mast business confidence; four years of stagnating and then declining SARB leading indicator; 30 months of falling car sales; two years of rising interest rates – all leading to a recession bogey that is finally within sight, according to some, in 2016.
He believes that two or more quarters of GDP decline is unlikely to happen in 2016.
“One isn’t supposed to sleepwalk into recession. A modern social-democratic society with a vibrant market economy has far too much dispersed, restless energy for its activity to ebb away and it gradually being forced to a standstill, and then into falling away,” the economist said.
“Far too many of us are active, in millions of ways… which tends to succeed in overcoming even stormy headwinds, and to keep us going.”
He said that recessions are the consequence of shock treatment – an internal financial shock inducing many into fearful panic. “But we haven’t so far been shocked like that at all,” he said, despite what he called the “Zuma carnage”.
“Zuma is apparently prepared to face some music over Nkandla, but why not present a bill, too, for reckless conduct unbecoming a head of state, needlessly causing our collective interest burden to rise overnight because some close friends needed a more pliable finance minister utterly unacceptable to the world of finance?”
Bruggemans said that Gordhan is faced with an enormous task of convincing markets of his credible intentions to reform the country’s fiscal stance – worthy of a lower risk premium.
“It is one thing to drastically rearrange the budget numbers, quite another for the headwinds to the economy to recede.”
“Sidestepping the slide into recession, and stepping up activity levels implies more business risk-taking, pro-actively committing to doing more,” Bruggemans said. But that flies in the face of the primary reason why we have been backsliding since Zuma took office in 2009, he added.
“Our government’s political paradigm differs fundamentally with the way our economy is organised and does business. The government’s policy templates may make sense within its view of the world and how it wants to transform it, but it isn’t a practical tool.
“Instead, it is a destructive wrecking ball, preventing a quality public sector pulling its weight in delivering needed services, and actively demoralizing a productive private sector, inviting it into defensive withdrawal.”
The economist said that Gordhan’s brief does not extend to recasting the greater government policy paradigm. That awaits a future generation of political leadership. That policy however, is what governs the country’s growth.
“We can only support finance minister Gordhan in his Herculean task to change our fiscal budget reality, slashing spending and budget deficit while doing minimal damage to taxes and morale. That is a needed first step.
“To change the growth outlook, however, the world has to turn into a friendlier place, while domestically the political paradigm needs to get real,” Bruggemans said.
He said that the anxiety around junk status is ‘hogwash’.
“The Zuma carnage in those two days in December junked us more comprehensively than what mere rating agencies were going to impose twelve months later. Junk is already a reality, embedded in our numbers.”
The question for South Africa, is whether ‘we’ can talk ourselves back into credibility, Bruggemans said.