Deteriorating finances batter the SA economy

nternational rating agency Fitch in June also revised its South Africa outlook from the 2.3 percent it forecast previously to 1.7 percent. Photo: Reuters

JOHANNESBURG – South Africa’s battling economy pushed further to the edge yesterday as Moody’s flagged that the country deteriorating public finances and weak domestic spending constrained retail sales.

Moody’s said the pace of the country’s fiscal consolidation would fall below government forecasts as weaker-than-expected growth and a rising public sector wage bill threatened the economy.

The rand fell nearly 3 percent against the dollar to R14.5754 at 5pm to the greenback – its lowest level since 2016.

Moody’s said it expected a 4 percent fiscal deficit of the gross domestic product (GDP) in the current financial year, down 0.4 percentage points from government targets.

“Growth this year is expected to be lower than the government’s own estimates, weighing on tax revenues, while the public sector wage agreement in June also brings extra, unbudgeted costs,” Moody’s senior vice-president Lucie Villa said in a note yesterday.

The International Monetary Fund last month warned that South Africa’s fiscal policy needed to focus on containing the rise in public debt and building buffers against potential shocks.

The country has been forced to revise downwards its optimistic growth projections as the economy contracted the most in nine years in the first quarter, with available second-quarter data indicating stagnation.

“We think that South Africa’s economy will accelerate in the second half of 2018. Even so, the risks to our forecast for 1.3 percent economic growth over this year as a whole are now clearly weighted to the downside,” Capital Economics Africa economist John Ashbourne said.

Nedbank and NKC African Economics have cut their full-year forecasts from 1.9 percent to 1.5 percent following the first-quarter GDP data.

International rating agency Fitch in June also revised its South Africa outlook from the 2.3 percent it forecast previously to 1.7 percent.

Retail sales registered a modest 0.7 gain in June on an annualised basis, retreating from a 1.9 percent rise in May and well below market expectations of a 2 percent increase.

On a monthly basis, retail trade decreased 1.2 percent, down from a 0.9 percent gain in the previous month as the high fuel costs stymied consumer spending.

Higher tax

The sales, which are heavily dependent on consumer spending, began the second quarter with a higher VAT, now at 15 percent, and the poor job market.

FNB senior economic analyst Jason Muscat said consumers cut back on expenditure in order to apportion far greater amounts of their disposable income to transport.

“When assessing today’s (yesterday’s) retail numbers together with the mining and manufacturing numbers for June, it seems likely that the South African economy entered a technical recession in the second quarter,” Muscat said.

[“Source-iol.co”]