EDITORIAL: Low growth a let-down after Ramaphoria

This time in 2018 the country was in the midst of what would be known as Ramaphoria.

Jacob Zuma’s scandal-hit decade in power was a thing of the past, and in Cyril Ramaphosa the country had a new leader who would supposedly usher in a new era of policy certainty and business-supporting measures. That was in contrast to the end of the Zuma era, which was marked by hostility towards the private sector, best expressed in the daily railings against white monopoly capital.

So how disappointing it is to await confirmation on Tuesday that economic growth in 2018 came in at a paltry 0.7%. Not only is this far from the levels of about 5% that are needed to make inroads into the country’s unemployment crisis, it is only just more than half the rate achieved during Zuma’s last year in office, when the economy expanded 1.3%.

On the growth front, SA’s performance has been grim for a while and we have not managed a rate of more than 2% since 2013, according to World Bank data. The days of more than 5% growth, in the latter years of Thabo Mbeki’s administration, seem like ancient history. The result of the country losing its way is that we are all poorer, unemployment has shot up and so has our debt.

After a strong recovery in the third quarter in which the economy expanded 2.2%, it was back to the unhappy normal of lacklustre growth in the last three months of 2018, with economists surveyed by Bloomberg forecasting a growth rate of 1.2%. Take away 2018’s recession and it would have been the worst economic performance since the first quarter of 2017, when it contracted 0.5%.

Considering that we started 2019 with another round of load-shedding from Eskom, it is highly unlikely that when the numbers for the first three months of 2019 eventually come out, they will give us a brighter picture. The power utility is often cited as the biggest risk to the economy. That has already made itself felt in declining business and consumer confidence, and fears that the country’s debt could be downgraded to junk by Moody’s in 2019.

It is telling that the rand has been the biggest loser against the dollar over the past week, even as confidence grows that the US and China will resolve their trading dispute. That should normally be supportive of risk sentiment more broadly, and the rand as a popular proxy for sentiment towards emerging markets.

And yet the currency is down about 2% against the dollar in the past week. It is just less than 4% lower against the pound, although one should not read too much into that one, considering that it has been driven by optimism that the UK might delay its departure from the EU, leading to broad-based pound strength.

A weak rand is of course bad news for SA consumers, who are set to be hit by a 5% increase in the fuel price on Wednesday that will soon be followed by higher toll fees and taxes.

Longer term, these forces could push inflation higher and remove any prospects of the Reserve Bank cutting interest rates. The Bank has been immune from suggestions that it should ignore movements in the rand and oil prices, the impact of which on inflation monetary policy is powerless to control.

But trading in the bond markets at least suggests that the Bank is also unlikely to react to these forces by raising rates, with yields on 2026 bonds slightly lower than they were at the end of 2018. A more optimistic reading of stable bond prices might also be that the markets are not overly concerned about the possibility of a downgrade as they would otherwise seek a bigger premium to hold our bonds.   

Unfortunately, this is not enough for SA. The country, and financial markets, need to see evidence that the government is ready to turn all its good intentions into concrete action.