While much of the world has been focusing on the US Presidential election and the referendum, which will decide whether or not Britain stays a member of the European Union, here in SA events have been almost entirely dominated by one issue – will the country be downgraded to junk status?
As it turned out S&P decided to keep their rating on hold at BBB – with the outlook remaining negative whilst Fitch kept it all on hold including a “stable” outlook. Although much relief was felt by everyone with the local currency rebounding some 4.5% on the news, nobody should be under the illusion that this decision is anything but a reprieve. The Rating Agencies are fully aware of the political risk and the lack of action towards kick starting economic growth.
The country now has six months to show that real steps are being made to regenerate growth in the economy and to greatly diminish the threat of further political interference in the workings of the finance department.
Much has been made of the favourable decisions from the Rating Agencies have been as a result of a cohesive approach from Government, Business and Labour. There is now talk of a much needed economic CODESA to decide on a definite course of action. As finance minister Pravin Gordhan says: “We do not need any more plans. What we need is action”. Hear hear!
Unfortunately it is not all good news. Just prior to Fitch’s announcement Stats SA released the first quarter’s GDP figures and it came as a bit of a shock in most quarters. The economy contracted 1.2% in the first three months of the year. Officially SA is headed for a recession. Some economists believe we have been in recession for some time now.
Nevertheless, stock markets remain buoyant with our own JSE flirting with its previous record high of 54 760 which was reached in November last year. A one year return (to end of May) of 6.25% compares very favourably with the MSCI World index of negative 3.39%. Our best performing sector was listed property with a return over the year of 9.36%. Although this looks impressive given global market conditions the reality is slightly different. The Rand has depreciated against the USD by 30% in the one year period up to the end of May.
Over to the powers that be to introduce some action and not just more plans.