Analysts gloomy about prospects for demand
Despite improvements in some indices, many are revising down earlier growth forecasts
Despite indications that the South African economy is strengthening, economists are taking a grimmer view.
Standard Bank’s purchasing managers’ index (PMI), released on Wednesday, was upbeat, although Standard Bank economist Thanda Sithole acknowledged there were remaining risks to the economy in the context of global trade worries, higher international oil prices, sustained currency weakness and a continuing debate on land expropriation.
Sithole said private sector activity had expanded for the first time in two months, signalling that momentum had returned to the economy, and forecast that the PMI would for the rest of 2018 largely show signs of improving domestic business conditions influenced by consumption spending and reasonable global growth.
The index inched up to 50.9 in June from 50.0 in May, with the subindices for output, new orders and employment all above the 50 mark that separates expansion from contraction. But economic activity has stalled in recent months.
First-quarter growth showed the worst quarterly contraction in nine years following weak performances in mining, manufacturing and agriculture, while business confidence also took a dive.
Monday’s Absa PMI, which measures sentiment in the manufacturing sector only, painted a considerably different picture, slumping to the lowest level in three months. Analysts say this is telling for the economy.
While they expect growth and confidence to improve in the second half, many are revising down their growth forecasts for the year. Capital Economics, for example, has cut its forecast from 2.0% year on year to 1.3%.
While temporary factors contributed to the fall in output in the first quarter, they explain only a small share of the contraction, said Capital Economics economist Johan Ashbourne.
"President Cyril Ramaphosa’s first few months in office have seen both a faster than expected move towards fiscal austerity and an unhelpful lack of policy clarity. VAT hikes will help to stabilise the public finances, but they are a painful drag on domestic consumption."
He said the optimism associated with Ramaphosa’s presidency saw a boost in business and consumer confidence but it had proved fleeting. "This gloomy reappraisal … has poured cold water on hopes that Ramaphoria will translate into a tangible boost to demand later this year." Investec warned that the economy will not grow as fast as it had hoped, lowering its GDP growth forecast for 2018 to just 1.4% from 1.8%.
"The damage to business confidence has not yet been repaired," said Investec chief economist Annabel Bishop. "Lower confidence indicates a likely lower GDP growth."