Nene’s finger hovers over the panic button after GDP shock


Nene’s finger hovers over the panic button after GDP shock

Market hammered but finance minister says economic structural reforms and a stimulus package are coming

Parliamentary editor

The reaction from the market  to SA’s terrible GDP figures was swift and brutal on Tuesday, with the rand weakening to R19.75 against the pound, its weakest level since June 2016 – one of the most chaotic periods of Jacob Zuma’s presidency, marked by credit downgrades and midnight cabinet reshuffles. The currency crashed through R15/$, also for the first time since June 2016, and was 3.4% weaker at R15.37 at 7.30pm on Tuesday.
SA stocks and bonds also sold off, reflecting concern that a shrinking economy will further damage the country’s fiscal position and attract the attention of credit ratings agencies, at a time when revenue collection is falling behind.
The benchmark R186 government bond was last bid at 9.22% from 9.02%, while the JSE All Share index closed 1.4% lower.
Finance Minister Nhlanha Nene says he is due to present economic structural reforms and a stimulus package that he believes will pull the economy out of a technical recession.
This is after it emerged that the economy had slipped into its first technical recession in nine years, following Statistics SA’s announcement on Tuesday that the country’s GDP shrank 0.7% in the second quarter of 2018. The GDP drop followed a revised fall of 2.6% in the first quarter of 2018.
Nene said that while the government was disappointed by the latest economic figures‚ he was confident the economic structural reforms and measures to stimulate the economy – due to be tabled in parliament in October – would help pull SA out of the woods. The medium-term budget policy statement will outline the government’s economic blueprint and spending plans for the next three years.
Nene also conceded that this year’s VAT increase had taken money out of the pockets of citizens‚ with a decline in household consumption cited as one of the reasons for the contraction in GDP.
Speaking from Beijing, China‚ where he is attending the Forum on China-Africa Co-operation with President Cyril Ramaphosa‚ Nene said it was understandable for there to be a panic in the country, but insisted that the government had a plan.
“The real reform package that comes out of the cabinet process is in the pipeline. There are formal processes under way‚ some of them culminating in the upcoming investment conference that the president is going to be holding in October‚ but also the [budget policy statement]‚ because some of these are actually policy issues so I would imagine that by the time we go to the [budget policy statement]‚ we should have concluded them.”
• Meanwhile Goldman Sachs has revised its expectation of SA’s GDP for 2018 downwards from 2% to 0.8%, citing the “downside surprise” in the GDP number for the second quarter.
“On the expenditure side, domestic demand and, in particular, inventories exhibited significant weakness, while on the production side, agriculture contracted sharply (and to a lesser extent the tertiary sector).”
The investment bank said the implications for monetary policy were mixed. “On one hand, weaker growth implies a larger output gap and a weaker domestic inflationary impulse. On the other hand, as evidenced by the weakening of the rand in response to the news, some market participants may once again become concerned about risks of negative rating action.”
It said that “on balance” the news was dovish and decreased rather than increased the liklihood of the Reserve Bank raising interest rates in the short term.

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