S.A economy continues to lose momentum

The South African economy has officially slipped into a recession, reflecting a significant and sustained decline in both business and consumer confidence. The recent credit rating downgrades and ongoing political upheavals have exacerbated the economic challenges faced by the country. James Turp, Portfolio Manager at ABSA Asset Management, and Richard Downing, Economist at SACCI, joined CNBC Africa to discuss the current state of the South African economy. Turp noted that the recent growth numbers and rising unemployment figures have added to the prevailing sense of gloom. Consumer expenditure remains weak, with retailers struggling to attract buyers. The policy paralysis in the country, particularly due to ongoing political uncertainty, has hindered meaningful economic growth and discouraged investor confidence. Turp advised investors to consider government bonds in a low growth, low inflation environment to benefit from real returns. Equities, on the other hand, may not provide the growth expected due to the volatility in the market. Turp also highlighted concerns about potential credit rating downgrades and the impact on passive fund investments. Despite these challenges, there has been continued foreign investment in South Africa, indicating some confidence in the market. Richard Downing shared insights from SACCI's latest business confidence index, which indicated a decline in business sentiment in May. He emphasized the need to boost business confidence to drive economic growth. Downing pointed out that the official unemployment rate of 27% does not paint the full picture, as the more comprehensive figure, including discouraged job seekers, stands at 36%. He underscored the importance of clear policy direction and increased fixed investments to foster economic growth and job creation. Turp and Downing highlighted the significance of policy decisions in addressing the current economic challenges faced by South Africa. Turp analyzed the contrasting economic performance of other countries, such as the UK post-Brexit, and emphasized the importance of fiscal policies in driving economic growth. He expressed concerns about the potential impact of the UK elections on fiscal policy and highlighted the need for investors to monitor global events that could affect markets. The discussion also touched on expectations from the European Central Bank meeting and the upcoming FOMC meeting in the US. Turp noted the market's anticipation of balanced growth projections and concerns about low inflation, while Downing highlighted the impact of external factors on local markets. The conversation concluded with a reflection on the strength of the South African rand and its implications for investment decisions. Turp noted the complexities of investing in a strong rand environment and the potential benefits of a weaker rand to boost local economic activities. While a weaker rand could provide favorable conditions for South Africa, the current forecast predicts a strengthening rand due to the prevailing economic challenges. Overall, both speakers emphasized the critical need for clear policy direction, increased investments, and improved business confidence to revive the South African economy amidst ongoing uncertainties.