A likely rise in bankruptcies, electricity supply constraints, a poor jobs outlook, and material fiscal constraints, do not set South Africa’s expected economic recovery on a good path, says Sanisha Packirisamy, economist at Momentum Investments.
In a note on Tuesday (5 January), Packirisamy said that a resurgence in Covid-19 cases and tighter restrictions could also temper the expected upturn in the country.
“The major rating agencies have flagged that fiscal consolidation and the economic reconstruction and recovery plan – which should improve the fiscal and economic outlook for South Africa – face high implementation risk,” she said.
“If government fails to arrest the increase in its debt burden through extensive wage bill cuts and capping additional financial support to poorly performing state-owned enterprises, further negative rating actions could well be on the horizon later in 2021.”
Packirisamy said that more favourable terms of trade and positive momentum behind global vaccine hopes should support the rand in the interim.
“Nevertheless, we continue to see a depreciating bias in the local currency in the medium term, given South Africa’s deteriorating macro-fundamentals on a relative emerging market comparison”.
Packirisamy said that additional monetary policy easing is less likely in 2021, unless South Africa suffers another growth setback induced by prolonged tighter lockdown restrictions or there is another sharp dip in inflation.
The steep petrol price increase on Wednesday (6 January) is also likely to have knock-on effects for consumers, says Neil Roets, chief executive of Debt Rescue.
“2021 has got off to a bad start with a hefty fuel price increase that will have a ripple effect throughout the economy. While the immediate impact will be felt on commuters who use public transport, specifically mini-bus taxis, the increased costs will affect households across the board,” he said.
In addition to public transport costs, Roets said that price hikes also have a knock-on effect on the cost of food. This has the potential to boost inflation and could lead to an interest rate hike, which will add further financial pressure to consumers.
Given the fragility of the economy following almost a year of lockdown, and as the country faces a return to harsher restrictions following the impact of the second wave of infections, these increases could not have come at a worse time, said Roets.
“The economic impact of Covid-19 has been significant on South Africans who are already struggling to make ends meet.
“We are entering a phase of significant turbulence both globally and in the local market. Consumers must therefore practice extreme caution and budget for the worst-case scenario.”
“If the vaccine is successful, it will boost trade, travel and industry and thus the demand for fuel, which will also affect the price,” said Roets.