Global asset manager Schroders has left its near-term outlook for SA unchanged despite the country’s simmering social discontent, high unemployment and inequality.
The recent social unrest in Gauteng and KwaZulu-Natal that erupted after the imprisonment of former president Jacob Zuma caused significant economic disruption, including the blocking of the arterial transport routes linking these provinces, which account for about 50% of GDP. Shopping centres and warehouses were attacked and looted, while more than 300 people died in the violence.
Robert Davy, emerging market equities fund manager at Schroders, says the social unrest has not changed the global asset manager’s near-term outlook for SA.
“While [the social unrest] will have a short-term impact on the economy, the government’s response has stabilised the situation and growth should continue to recover post-pandemic,” he says.
The global asset manager believes SA’s monetary policy remains supportive, and there has been an improvement in both the current account and fiscal positions. “Equity valuations are attractive, especially among domestic stocks.”
After initial losses, the JSE is now 1.73% stronger, and 1.54% higher so far in 2021.
The rand also sold off initially, reaching a four-month low during the unrest. It has since recovered and is up 3.84% in 2021, according to analytics firm Infront.
The government has taken measures to provide additional financial support and has extended an existing Covid-19 grant to March 2022. The measure is expect to cost an additional R27bn. President Cyril Ramaphosa is also weighing up the feasibility of introducing a permanent basic income grant. This could add upside risk to the government’s debt burden, particularly as commodity prices normalise.
“The recent resurgence in Covid, together with the ramifications of July’s social unrest, will have a short-term impact, but the economic recovery is already gathering momentum,” says Davy.
First-quarter GDP growth of 4.6% beat consensus estimates. Manufacturing PMI has been in the mid-50s for much of this year, while industrial production and retail sales have picked up, says Davy, adding that commodity price strength has been a further pillar of support for exports.
“The events of July revealed social discontent simmers just beneath the surface; unemployment remains high, as does inequality.
“The economy faces long-term structural challenges, not least of which is still low economic growth that is further hampered by an unreliable power supply and significant government debt levels. To address these social challenges and accelerate economic growth, reforms are urgently needed, but progress is slow,” he says.
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