Sababu 4 Za Kwanini Rais Zuma Asingetakiwa Kuwa Rais Baada ya July 2015
Emerging
markets economist Peter Attard Montalto of Nomura forecasts a tough
year for SA’s economy in 2016, with a presidential recall of Jacob Zuma
around July a possibility after a potentially poor showing by his ruling
party in the May local elections.
After Zumxit, as Attard Montalto calls
the potential recall of Zuma by the African National Congress, there
could be a layer of new, more left-wing policies, including an
accelerated implementation of the national minimum wage.
“Markets will also need to watch nuclear
tendering and parastatals,” he said. “We believe a sub-investment grade
rating is possible from one agency by end-2016 for South Africa bonds,
while into 2017 there are more likely to be two key agencies assigning
junk ratings.
“We see no broader shifts in policy that
would boost growth during the year, while the SA Reserve Bank (Sarb)
attends to increasing inflationary pressures (we revise up our inflation
forecast significantly to an average of 6.4% in 2016), rather than just
addressing inflationary risks, which was a 2015 theme.
“We expect only 0.9% growth (vs 1.6%
previously) as the economy digests the risk premia impact of the
presidential reshuffle, as well as mining restructuring and the full
implications of a global terms-of-trade shock.
“Following an initial ‘okay’ budget in
February against such a weak growth environment, we expect much more
consolidation difficulties through most of the year.”
Attard Montalto evaluated the four pillars of the South African economy:
1. The rand (ZAR)
He believes the rand will reach R16/$ between 2016 and 2017.
Attard Montalto believes South Africa
will become a credit-driven currency moving towards sub-investment grade
that stands out as a “shoe dropping” candidate for investors.
“There will likely be more volatility
than in 2015, thanks to the Fed and the domestic political story. Sarb
hikes likely will act as a break to a more disorderly move,” he said.
“Overall, ZAR will still likely appear
undervalued on a variety of metrics and that is why the narrative change
to credit and risk premia is important.
“South Africa can, in this framework,
weaken further through 2016 as the downgrade story is likely to
intensify and it moves closer to Brazil in markets’ minds.”
2. The economy
Attard Montalto’s growth forecast for
2016 falls from 1.6% to 0.9%, while he sees growth of 1.8% in 2017 from
1.9% previously, with particular downside risk from strike action.
He sees risks still slightly skewed to
the downside, thanks to potential wage-round related strike action
through mid-2016 that may occur around the manufacturing wage round
involving the National Union of Metalworkers Union of SA, with the coal
and platinum wage rounds starting to kick off into year-end.
Nomura’s inflation profile is heavily
driven by the shift in rand forecast from R13/$ to R16/$ at the end of
2016, he said. Core inflation breaches target in July. “Specification
changes to the food price equations better capture the slow turn we have
seen in food and this leads to the second higher ‘wave’ of non-core
inflation through Q4 2016 and Q1 2017,” he said.
3. The Sarb
Nomura expects Sarb’s monetary policy
committee (MPC) to hike the repo rate by 50 basis points (bp) to 6.75%
in January. This is “to account for the sharp weakening of the
currency’s risks into second-round effects, some outflow (though less
than might otherwise have been expected from such a political and credit
risk premia shock) and with inflation expectations grinding higher,”
said Attard Montalto.
“After that, if outflows remain moderate
and orderly, the Sarb should be able to revert to 25bp moves until the
second half of 2016, with core and headline inflation breaching target
into a wage-round period that may cause some alarm for the MPC. As such,
we see a reversion to 50bp moves to reach 8% by November 2016.”
Nomura expects a 50bp increase in
January, 25bp in March, 50bp in July (taking the rate to neutral) and
then 50bp in November. It sees a final hike (maybe 2x25bp) to 8.50% in
the first half of 2017.
“The move before neutral will require a
new framework, but we think the old one will be instructive – sensitive
to growth still, but ultimately focusing on ‘inflation fear’ and risk
management, looking to cut off second-round effects into core inflation
and expectations,” said Attard Montalto.
4. Fiscal policy
Nomura is not worried about the budget
dynamic in the very short run and believes a VAT hike in February seems
unlikely before the local elections.
“The 2016 budget in February may still
broadly hang together okay, though will look increasingly frayed at the
edges, with large risk holes,” said Attard Montalto.
With Treasury’s “guerrilla warfare with
other government departments to find cuts, they should be able to make
additional savings needed this time at least, while allowing the deficit
to expand out a little”, he said.
2016 will be a reinforcement of 2015
after the mini budget later in the year, with no space left for
countercyclical fiscal policy and a market demanding real consolidation
evidence, said Montalto.
He said economists will need to see if
the Democratic Alliance strengthens its oversight of the budget within
the National Assembly, “utilising a variety of parliamentary and legal
avenues to call attention to the pace of fiscal consolidation as well as
the specifics of spending. This may well include further attempts at
opposition parties amending the budget.”
africacradle.com
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