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Global issues, local concerns pummel SA economy

South Africa's commodities
South Africa’s commodities

JOHANNESBURG – ANALYSTS have forecast a further recession of the South African economy because of load shedding, the raging coronavirus (COVID-19) and government plans to trim the public servants’ wage bill.

The bleak projections come amid Africa’s most advanced economy entering its second technical recession in the space of just two years.

According to Statistics South Africa (Stats SA), real gross domestic product (GDP) fared worse than market expectations in the final quarter of 2019, contracting by a seasonally adjusted annualised 1,4 percent quarter-on-quarter (q-o-q).

This is in comparison to the market forecast of a 0,2 percent decline.

Stats SA figures indicated the main drag came from lower value added by transport, storage and communication (down 7,2 percent), agriculture, forestry and fishing (-7,06 percent).

The construction sector fell by 5,9 percent while electricity, gas and water (-4 percent), trade, catering and accommodation (-3,8 percent), manufacturing (-1,8 percent) and government service (-0,4 percent) also recorded declines.

The weakness in these sectors largely offset modest growth in mining (up 1,8 percent) as well as finance, real estate and business services (2,7 percent).

Nedbank, one of the country’s biggest banks, said the economy’s diagnosis was gloomy.

“Prospects remain murky,” Nedbank stated.

“This is given the realities of protracted load-shedding, the drag from the public sector’s weak financial position, the threat of renewed upheaval around the state’s plan to slow growth in public sector wages as well as a highly uncertain global economy rocked by the rapid spread of and disruption caused by the coronavirus.”

On the supply side, the bank added, the mining and manufacturing sectors would be the hardest hit by rolling power outages and the virus-stricken world economy, given substantial exposure to China as an export destination and as a source of essential components.

Growth in services, particularly in the broader domestic trade and finance industries, will probably also remain subdued.

Rand Merchant Bank (RMB) also bemoaned the simmering tensions between government and the labour.

The government of President Cyril Ramaphosa aims to reduce the public sector wage bill by R160 billion (US$10,2 billion) over the next three years.

Labour unions have expressed concern at the proposal.

“The stand-off between government and labour unions continues to provoke anxiety as the National Treasury’s fiscal targets hang in the balance,” Nema Ramkhelawan-Bhana, the Head of RMB Global Markets Research, stated.

The Agricultural Business Chamber (Agbiz) however is optimistic of the recovery of South Africa’s farming economy in 2020.

It pointed out the improved weather conditions have led to an increase in summer crops area plantings and prospects of higher yields.

The data recently released by the Crop Estimates Committee showed that South Africa’s 2019/20 summer crops production could increase by 26 percent year-on-year (y/y) to 16,8 million tonnes, which could be the second-largest summer crops harvest on record after the 2016/17 crop.

Among other highlights, the South African wine grapes production is also set to increase in 2020.

There is also general optimism about 2020 harvest in the fruit industry, which supports the view of possible improvement in the farming economy this year.

“Against this backdrop, we are convinced that South Africa’s farm economy could recover by at least 5 percent y/y in 2020,” Wandile Sihlobo Agbiz economist, said.

However, the spreading coronavirus and foot and mouth disease in the domestic market remain a cause for concern.

“The coronavirus could negatively impact the global demand for agriculture products, and subsequently prices,” Sihlobo explained.

“Whereas, the foot-and-mouth disease has led to a ban on South Africa’s livestock products exports since the end of 2019,”the economist said.

– CAJ News

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