Making financial news today in South Africa is the South African Reserve Bank’s latest forecast for 0% growth in 2016.
Announcing the unchanged repo rate of 7% by the South African Reserve bank Monetary Policy Committee (MPC), South African Reserve Bank Governor Lesetja Kganyago cautioned that the country’s economic outlook is bleak. The unchanged repo rate was widely welcomed as it will relieve the pressure off consumers.
“It’s great news for the struggling South African consumer. Sadly, the reprieve is less about SA doing well than the rest of the world doing badly. With this in mind, consumers should use this reprieve to pay off their expensive debt; pay up before the oil price goes up or the Rand goes down,” says Glen Jordan, MD of IMB, a Fintech start-up.
The Gross Domestic Product (GDP) contraction in the first quarter of 2016 confirms that the economic growth outlook remains extremely challenging.
While business confidence remains low, this announcement by Kganyago should be heeded as a warning to government.
Households should brace themselves for a challenging year. Various compounding factors such as low consumer confidence, high debt levels, rising costs of debt servicing and slow employment growth will continue to affect the economy and consumer trends.
These financial news indicate that consumption expenditure by households is expected to remain subdued.
South Africans should expect to have to dig deeper into their pockets to afford basic household needs. Debt levels are also expected to soar, with more South Africans borrowing just to stay afloat.
What does a zero growth economy mean for South Africa?
Uncertainty in the markets, which has largely been triggered by global events such as terror attacks, and more recently, the Brexit, has had an impact on the South African economy.
“The uncertainty drives investment out of emerging markets and towards safe havens, “Kevin Lings, chief economist at Stanlib told Fin24.
He also warned that the risk of a credit downgrade is still real and emphasised the importance of government following up with implementation of a policy that will stimulate growth.