Persisting difficult trading conditions, pressure on operating costs, weakening local and global growth trends, and poor investment fundamentals are some of the economic challenges facing businesses in South Africa and the broader economy at present. This is according to Sakeliga’s Economic Overview for Business Decision Makers, a quarterly publication produced in association with ETM Macro Advisors.
Sakeliga is especially concerned about the widening of the national budget deficit over Q1 2019. Annualised government spending is nearing 32% of GDP – historically high levels. Hefty expenditure and weak tax collection means that the National Treasury’s deficit forecasts are likely to be breached.
Gerhard van Onselen, senior analyst at Sakeliga says, “The business sector is clearly experiencing serious challenges. Our analysis outlines various drivers behind this troubling state of affairs. Our expectation is for disappointing GDP outcomes in the first quarter of 2019 – clearly, the recent boat of Eskom power cuts harmed productive endeavours of many businesses.”
Furthermore, widening budget deficits, steep state expenditure, and dysfunctional state-owned enterprises are weighing in against the prospects of improved business conditions. Steep state expenditure and risky SOEs are increasing the risk of increased taxes at a time when serious questions may be asked about the soundness of government spending and investment. In spite of these pressures, government appears unwilling to affect real deregulation and market liberalisation – lack of clarity on policy, with threats of greater regulation and intervention, is a real drag on the private sector.”
On the positive side, the report notes the possibility of improved gold demand in future and slower rates of inflation as positives for the local economy. “Slowing inflation rates point to central bank prudency in the face of political risk. Slower inflation means less severe cost of living pressure on households.”
However, Van Onselen concluded, “local businesses should keep a close eye on the deterioration of European and Asian leading indicators. These regions are important trading partners of South Africa.”
The full update is available HERE.