Growth needed despite rating agencies stable outlook

Statistics South Africa confirmed on Wednesday that the economy contracted by 1.2% on a seasonally adjusted and annualized basis in the first quarter of the year, a much steeper contraction than had been expected.

Shortly after this announcement, ratings agency Fitch affirmed the rating as Triple B- minus – it also said that our outlook was stable.

But it warned of low trends in GDP growth.

Stephen Grootes talks to Mohamed Nalla, head of strategic research at Nedbank Capital and Investment about what this means for South Africa's economic outlook.

There was an expectation, a risk, that they may change the stable outlook to a negative outlook, given the kind of growth drives you see in the domestic economy, as well as the heightened local political risk premium that's coming through.

Mohamed Nalla, Head of Strategic Research Nedbank Capital and Investment

Nalla says that though they chose to affirm the stable rating, the concerns underlying the statements from Fitch and S&P are firstly, low growth and secondly, political risk.

We need to see this political side show being put to the side and much more emphasis placed on putting the right policies in place and implementing them.

Mohamed Nalla, Head of Strategic Research Nedbank Capital and Investment

With regard to the GDP report, Nalla says there is always much made in the media about going into a technical recession. He says the official definition of recession is two consecutive quarters of negative growth.

You can avoid a technical recession by having one quarter negative, next quarter positive and then another negative quarter. We are splitting hairs. This is an economy in distress.

Mohamed Nalla, Head of Strategic Research Nedbank Capital and Investment

The largest negative contribution over the quarter was mining and quarrying falling 18% on a year on year basis.

But it is the structural factors that add an additional level of vulnerability and even further deterioration to growth, says Nalla.

Kevin Leng, Chief Economist at Stanlib, agrees. He says the concern is broad-based weakness in primary sectors like mining and agriculture, but also transport and communication.

But ratings agencies have acknowledged that growth rates have been impacted by the drought as well as the global economy. Leng says they have taken these factors into account.

What agencies are highlighting is the deterioration of broad social cohesion in South Africa, the increase in political risk and policy uncertainty.

Kevin Leng, Chief Economist at Stanlib

He says we have breathing space, but policy officials need to focus on getting politics and policy environment right, or a downgrade will certainly follow.

EWN's Gia Niccolaides at the Economic Indaba in Gauteng says Finance Minister Pravin Gordhan spoke just before these two major announcements. He said that government was doing the right work to gain breathing space.

He added that investors locally and internationally are tired of hearing about plans, and it's time to implement ideas that will ensure the 3 to 5% growth the National development Plan requires.

Read More
Cape residents billed over R31 million in December for water overusage

Cape residents billed over R31 million in December for water overusage

Cape Town City billed ratepayers over R33 million for failing to adhere to imposed level 3 water restrictions.

Davos WEF is about the economy of the super rich 1% - Oxfam Inequality Report

Davos WEF is about the economy of the super rich 1% - Oxfam Inequality Report

Oxfam says the World Economic Forum is the most elitist gatherings and the most expensive economic event on the calendar.

Rating agencies do make mistakes, but still carry weight - expert

Rating agencies do make mistakes, but still carry weight - expert

Moody's Corp has agreed to pay $864 million to settle with the United States government over pre-crisis ratings.

D-Day for Vuwani demarcation submissions

D-Day for Vuwani demarcation submissions

Vuwani residents have until Monday afternoon to make submissions to Demarcation Board on how they want boundaries determined.

South Africa awaits decision to recall Ford Kuga (or not)

South Africa awaits decision to recall Ford Kuga (or not)

Ford SA and National Consumer Commission are expected to hold a joint media briefing regarding the future of Ford Kuga vehicles.

Limpopo DBE given 72 hours to release matric results of alleged cheating pupils

Limpopo DBE given 72 hours to release matric results of alleged cheating pupils

Court orders Basic Education Department to release pupils' matric results implicated in cheating despite an ongoing investigation.

Popular articles
Hooters introduces 'angel shots' to rescue women from dangerous dates

Hooters introduces 'angel shots' to rescue women from dangerous dates

Hooters SA has introduced the ‘Order an Angel Shot’ initiative for female customers who are feeling unsafe during a date.

Zuma taking over from Zuma is a good thing - Jacob Zuma

Zuma taking over from Zuma is a good thing - Jacob Zuma

Political Analyst Dr Sethulego Matebesi says it is concerning that the President is publicly and boldly endorsing his ex-wife.

South Africans get a kick out of Pornhub, Dr. Eve uncovers

South Africans get a kick out of Pornhub, Dr. Eve uncovers

South Africans enjoy watching pornography, so much so that they've made it onto the top 20 countries with highest hits on Pornhub.

Naked Scientist explains why mosquitoes 'discriminate' who they bite

Naked Scientist explains why mosquitoes 'discriminate' who they bite

Dr Chris Smith explains why some people are more desirable than others to mosquitoes.

Absa may have to pay R2.25 billion for unlawful apartheid era bank bailout

Absa may have to pay R2.25 billion for unlawful apartheid era bank bailout

M&G's Pauli Van Wyk speaks about Public Protector's preliminary report implicating Absa, Reserve Bank, Treasury and Presidency.

Consumer Commission to make a decision on Ford Kuga

Consumer Commission to make a decision on Ford Kuga

Spokesperson for the National Consumer Commission says they believe consumers are exposed to potential risks in these vehicles.

Reserve Bank Governor on outsourced printing of bank notes and 2017 predictions

Reserve Bank Governor on outsourced printing of bank notes and 2017 predictions

Governor Lesetja Kganyago says South Africa asked international companies to print banknotes as part of risk management.

House prices slump in some parts of the country

House prices slump in some parts of the country

Property economist at FNB, John Loos, says the drop in house prices is due to slow pace in economic growth.

Vaal Dam levels increase by 5.2%

Vaal Dam levels increase by 5.2%

Department of Water and Sanitation says recent rains have increased the Vaal Dam levels but more is still needed.

It's not the end of the road... Top tips to improve your matric

It's not the end of the road... Top tips to improve your matric

"Recognise that it’s not the end, it’s the beginning." Expert advise for school-leavers who want to improve their results.