DESPITE IMPROVED ECONOMIC FUNDAMENTALS COMPARED TO THIS TIME LAST YEAR MARKET
UNCERTAINTY, A LOW GROWTH OUTLOOK AND THE THREAT OF A RATINGS DOWNGRADE LOOM AS
MAJOR CONCERNS FOR ALL SECTORS, INCLUDING PROPERTY.
Low business confidence continues to undermine investment and household consumption, unemployment at 26.5% remains rampant, tight credit markets continue and the adverse consequences of higher marginal tax rate increases erode disposable income. Improved commodity prices should however sustain some economic upside.
Successful fiscal consolidation is key to rating prospects in 2017 as there are clearly risks of further downgrades in 2017 if economic growth doesn’t pick up somewhat. The budget deficit needs to be contained to no more than 3.5% of GDP. Intensified socio-political tensions will further hinder confidence and investment and structural reform.
According to the 2017/18 Budget the South African economy, which grew by an estimated 0.5% in 2016, is expected to grow by 1.3% in 2017 and 2% in 2018 as economic conditions strengthen. The growth rate last year is set to be the lowest growth since the recession of 2009.
A large part of our economic fortunes in 2017 will be tied to politics and how they play out will influence the macro environment game changers.
In making the improved forecasts for growth in the Budget it is clearly acknowledged that South Africa needs to bolster business and consumer confidence to support higher levels of investment as by improving policy certainty, safeguarding investment-grade credit ratings, and ensuring that the state meets its regulatory and service-delivery obligations, government can boost growth.
The recovery will be supported by moderately stronger global growth, more favourable weather conditions, reliable electricity supply, less volatile labour relations, recovering business and consumer confidence, and stabilising commodity prices.
A key signal to monitor is the interest rate. Local rates are likely to remain on hold in 2017 and beyond, principally due to the rand having so far avoided all the potential pitfalls that were anticipated like the rating downgrades, aggressive US Fed hikes, and an adverse cabinet reshuffle – and core CPI seems to be trending back to the SARB’s 3% to 6% target range.
CPI has peaked and improved climatic conditions have led to lower pricing for grains and reduced exchange rate pressures have been cost positive. However, the cost of oil (fuel) remains a key uncertainty for the inflation outlook.
Just by reading the daily headlines it is clear political tensions are likely to remain elevated in 2017, with the ANC’s succession battle poised to be an all-consuming political theme together with the continued risk of a cabinet reshuffle, with the Finance Ministry a focal point.
It is imperative a higher growth trajectory and more economic and political stability is achieved in the year ahead. Businesses will need to focus on productivity and innovation, but they will also require policy certainty and stability. There is too much at stake if growth does not begin shaking off the dust of a really poor 2016.
BY ANDREW KONIG, CEO OF REDEFINE PROPERTIES