It is unlikely that South Africa will plunge into a technical recession in the second quarter of 2019, despite the massive 3.2% contraction in Q1 – but if the ANC government doesn’t get house in order, the country as a whole will suffer.
This is according to Dawie Roodt, chief economist at the Efficient Group, who said that typically economies tend to bounce back after large Q1 declines unless extraordinary conditions existed, which he did not believe was currently the case.
“What is more important is that Ace Magashule stops contradicting the finance minister, Tito Mboweni – in particular with regard to the so-called expansion of the Reserve Bank’s mandate to include job creation,” he said.
“If ever there was a time for the governing party to unite, this is it – otherwise consumers could end up paying a heavy price for the bickering that is going on in the highest ranks of the ANC.”
Roodt said it was also vitally important to reduce the government’s wage bill, and redeploy the money to stimulate the small and medium business sectors, which was where real job creation should be taking place.
“At the moment the fiscus is paying vast sums of money to service the country’s massive debt, and to paying the government’s colossal wage bill,” he said.
“This is neither sustainable nor desirable because, ultimately, consumers – who are already at their wits end – are going to end up footing the bill for really bad economic policy,” Roodt said.
Light at the end of the tunnel?
Neil Roets, CEO of Debt Rescue, said that all of the main economic indicators that the group tracks shows that things are going to get a lot more difficult “before there is any chance of light at the end of the tunnel”.
“With Eskom’s debt approaching R500-billion and the utility failing to sell enough electricity to cover its daily expenditures, it is going to be incumbent on consumers to keep it from imploding and sinking the country’s entire economy,” he said.
Roets said the decline of the rand and the lack of a clear plan about how government plans to reduce its expenditure could lead to increasingly tough times ahead.
“While President Ramaphosa’s new cabinet blows a breath of fresh air into the political landscape it remains to be seen whether it will be enough to placate the ratings agencies who may see Eskom’s spiralling debt as enough reason to downgrade the country’s sovereign bonds.”
Roets said for most South African consumers, budgets were already stretched to the limit and it is difficult to see where the money was going to come from to deal with the latest round of price increases that are going to follow hot on the heels of the latest fuel price increase.
“Most consumers have cut out luxuries from their spending some time ago and will now have to start cutting on basic necessities just to stay alive,” he said.
He predicted that another round of fuel price hikes would follow in July because of the weakening exchange rate and growing volatility in the price of crude oil.