Business confidence in the 80s; WB, Nedbank cut SA growth forecasts; Gold, Aveng

By Linda van Tilburg

  • South African business confidence slumped to the lowest in 34 years in 2019 as the country faces power cuts, delays in policy implementation, deteriorating public finances and the risk of losing its only remaining investment-grade credit rating. A sentiment index compiled by the South African Chamber of Commerce and Industry showed business confidence declined to an average of 92.6 from a two-year high of 95.5 in 2018. That’s the lowest annual number since 1985. Sentiment surged in 2018 after Cyril Ramaphosa won the leadership of the ANC and took over as president of the country, but has since slumped as reforms stalled. Business confidence remains fragile and “could tilt either way” in the coming months depending on the fiscal and economic outlooks presented by Ramaphosa and Finance Minister Tito Mboweni in their state-of-the-nation and budget speeches in February, the chamber said. Assessments by credit-ratings companies, which are expected after the budget, will also affect sentiment, it said. The Chamber said, “the economy’s potential was wavering and required positive corrective steps to direct it in  an appropriate direction”.
  • The World Bank is the first key institution to cut its economic growth forecast for South Africa in 2020 due to Eskom fears. The Bank now expects the economy to expand by 0.9% this year, the Washington-based lender said in its Global Economic Prospects report. That compares with an estimate of 1% in its Africa Pulse report released in October and is well below government forecasts. Its outlook for South Africa is “markedly weaker” because it sees electricity supply and infrastructure constraints inhibiting domestic growth with weaker global economic conditions weighing on export demand. The World Bank sees GDP growth averaging 1.4% in 2021-22 if President Cyril Ramaphosa’s administration is able to ramp up structural reforms and address policy uncertainty, and if there’s a recovery in public and private sector investment.
  • Nedbank has cut is economic growth forecast for South Africa to 0.7% down from its previous estimate of 0.9% with Nedbank Chief Economist, Dennis Dykes predicting to Business Day that this growth forecast could “prove to be optimistic” if Eskom problems deteriorates further increasing the possibility of a full blown recession. The blackouts appear to be deteriorating and “unless there is some sort of miracle”, Dykes said, Eskom would remain a binding constraint on the economy. He also expected consumers to remain under pressure due to poor employment growth which drove personal income growth. The Nedbank boss also emphasised the need to bring in new suppliers to the electricity industry to supplement Eskom’s energy supplies.
  • News from the markets is that the gold rally has fizzled after it hit the key $1600 per ounce due to the de-escalation of the tension between the US and Iran. Spot gold fell by 0.6% to $1546 per ounce. Safe assets such as gold suffered from some profit-taking. Meanwhile, palladium prices have hit a record peak of $2149.50/oz. On the Johannesburg Stock Exchange, UK property group Intu fell by 14.89% due to mounting debt and market jitters due to Brexit fears in the UK Gold Miners recorded the biggest drop in a month losing  0.49% with AngloGold and Sibanye shares dropping by more than 3%. The Rand was trading at R14.21 to the dollar at the end of the day. The JSE All Share Index fell by 0.34%.
  • Construction company Aveng has announced that it would not take the decision from Seventy Five On Maude, to terminate the contract for the construction of the Leonardo in Sandton lying down. The Leonardo, estimated to cost R3 billion will be Africa’s tallest building but has been plagued by delays. Aveng said in a statement that the grounds for termination are incorrect and have denied that they were responsible for the delays. The building it said was practically complete for the purpose of its intended use.
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