South Africa’s economy like ‘the lower decks of the Titanic filling with water’
The current state of South Africa’s economy has a number of knock-on effects including the real estate market, says Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty.
Reacting to the slew of Moody’s downgrades that sliced through the country’s financial sector and corporates as well as state-owned enterprises and local and regional governments, Geffen said that they were “the economic equivalent of the lower decks of the Titanic filling with water”.
“Crucial Cabinet portfolio changes and national policy statements this year have done little to encourage international investor confidence in South Africa and this news from Moody’s is a further setback to any prospect of economic recovery in the medium term.
“The downgrading of the IDC, Land Bank and DBSA are particularly disappointing, because economic transformation will be further stifled or at least substantially slowed. This is the opposite outcome to the intended objective stated by the government as the reason for its radical policy shift, and economists will no doubt view it as an ‘own goal’,” said Geffen.
He said that in real terms of the real estate market, a more depressed national economy directly impacts the rate of job creation, further squeezes household finances, tightens lending criteria and puts the ability to amass general savings and mortgage deposits beyond the reach of even more consumers.
The real estate veteran noted that FNB’s May House Price Index pointed to year-on-year inflation for the month rose slightly to 4.7%, ‘but remains a mediocre market, and adjusting for CPI inflation implies a negative growth rate in real terms’.
“It will obviously take a while for this latest round of downgrades to have a direct impact on consumers, but they will feel it more and more the longer it takes for international investor confidence to be restored.
“This will only happen with a sustained demonstration of responsible macro-economic policy management and good governance – neither of which appear to be on the cards for now, Geffen said.
A Reuters poll found that with South Africa having slipped into a technical recession in the first quarter, and with inflation easing an interest rate cut is back on the agenda.
Reuters said that the median prediction for interest rates shows a cut is back in the forecast horizon – 25 basis points to 6.75% in January or March. Some economists have pencilled it in as early as July or September this year.
The country is expected to grow a mere 0.7% in 2017.
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