SA’s investment drive, the last interest rate call of 2020 and ratings reviews from both S&P Global Ratings and Moody’s Investors Services will be in focus this week.
The week opens with the SA Investment Conference — the government’s third flagship event targeting R1.2-trillion in fixed investment over five years — taking place on Tuesday and Wednesday.
This year’s conference comes in the shadow of the coronavirus pandemic, which forced many companies to review expansion plans.
An important aim of this year’s event will be to “consolidate” the roughly R664bn in investment pledges made during the previous two conferences, and ensure they are translated into action, trade, industry & competition minister Ebrahim Patel said in a recent briefing on the event.
Though the focus will be less about attracting new pledges, new investments will be profiled, said Patel. These will include an estimated R14bn from French-based companies, France’s minister for foreign trade & economic attractiveness minister Franck Riester, said on a recent visit to SA.
According to Trudi Makhaya, economic adviser to President Cyril Ramaphosa, he will report progress on promised reform measures and state capacity enhancements promised in his economic reconstruction and recovery plan.
September retail sales are due out on Wednesday. The sector has shown a steady recovery from the nearly 50% decline during April under level 5 lockdown restrictions, when only essential items could be purchased.
Retail sales were still down 4.2% from the year before in August, when SA moved to level 2, though this was a much better reading than economists had expected.
The unbanning of alcohol sales in September could provide more support to retail volumes, said FNB in a note. So too could the extension of the Temporary Employer/Employee Relief Scheme, and the extension of the government’s special relief grants, it said. Low interest rates will also continue to mitigate the effect of weak labour market conditions in the near term, it added.
“However, the longer-term prognosis remains tepid and highly dependent on consumer sentiment and labour market outcomes,” FNB said.
The last interest rate decision for this year is due from the SA Reserve Bank on Thursday. The Bank has slashed the benchmark rate through the crisis to historic lows of 3.5%.
According to RMB economists Siobhan Redford and Mpho Molopyane the monetary policy committee (MPC) is likely to leave rates unchanged.
The better-than-expected growth performance in the third quarter of the year, as well as improved global growth could also see the Bank revise its growth forecast higher than the 8.2% contraction it included in its September decision, they said in a research note.
In addition inflation has “moved largely as expected since the last MPC meeting and remains at the lower bound of the central bank’s inflation target band”, they said.
Since the last rates decision the medium-term budget policy statement (MTBPS) was released, plotting a slower pace of fiscal consolidation. “This elevates SA’s fiscal risks and points to a higher risk premium, which has implications for capital flows and the currency,” they said.
Given the improved growth outlook, unchanged inflation expectations and higher risk premium, RMB attaches an 80% probability that rates stay unchanged.
The week ends with ratings reviews from both S&P and Moody’s on Friday evening.
Both agencies have downgraded SA given the effects of Covid-19 on growth and deterioration of the state’s finances. S&P has downgraded SA more aggressively in recent years, leaving it two notches below investment grade with a stable outlook, while Moody’s has SA at one notch into junk terrain, but on a negative outlook.
Since their ratings actions, the government has released its economic recovery plan and the MTBPS. But the fiscal path outlined in the budget document — which sees government debt peak at a higher level and take longer to stabilise — hinges on negotiating a wage freeze for the public sector in the coming years.
After the MTBPS Moody’s pointed out the difficulty of this plan, given public-sector unions’ long held resistance to wage bill containment.
Moody’s may opt to see how the public sector wage negotiations play out before downgrading, as this will give a clear indication of the likelihood of success for fiscal consolidation, said Stanlib chief economist Kevin Lings.
This does not mean, however, that Moody’s will be comfortable with the deterioration in state finances, he said. Though on balance Lings believed Moody’s may do nothing, there was certainly a risk SA could get downgraded again.
In S&P’s case there is a chance that it will shift its outlook from stable to negative, and then wait to see what comes of wage negotiations, he said.
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