ECONOMIC WEEK AHEAD: Party conference will overshadow markets
The die has been cast with the probability of a ratings downgrade early in 2018 now seemingly high.
Hopes have been pinned on an economic saviour emerging from the ANC’s national elective conference, but First National Bank chief economist Mamello Matikinca cautioned that "irrespective of who is nominated, SA’s fiscal metrics remain dire and the probability of a Moody’s downgrade high".
The economic data scheduled for publishing this week is expected to be overshadowed by the markets absorbing the outcome of the ANC elective conference, which started at the weekend and will run through to Thursday.
The Reserve Bank’s business cycle indicator for October will be published on Monday and Statistics SA will publish tourism figures for October on Tuesday, rounding off a year of economic data.
Tumisho Grater, economic strategist at Novare Actuaries and Consultants, said there was marginal improvement in economic growth and activity in particularly the retail sector in the second half of 2017.
SA’s growth rate is expected to be better than the 0.3% in 2016, but many forecasts — including the Bank’s — put growth at less than 1% for 2017.
"We remain sceptical about whether the recent improvement in growth momentum can be sustained if the underlying fundamentals and political instability are not addressed," Grater said.
Key drivers of growth over the past two decades were now exhausted. This included the gains for the economy from transition from political isolation, improved terms of trade and demand from an emerging middle class. Fiscal policy was constrained, with a R51bn revenue shortfall to plug, and a newly announced free higher education policy for the poor that may strain the fiscus.
Despite this, the immediate outlook for the rand was slightly positive after it strengthened to R13.45/$ in the days leading up to the ANC conference because of improved current account data and dollar weakness. It had opened the week on R13.65/$.
"It is still possible to see the rand gain further traction should the markets’ preferred candidate win. Of course, the risk is that if this scenario does not play out, we are likely to see the rand weaken and bond yields rise," Grater said.