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The SA Daily 14 January 2020

Power cuts dim confidence

Shireen Darmalingam

  • The BER’s Q4:19 consumer confidence index later this morning is expected at -8 pts, from -7 pts in Q3:19. Sentiment had recorded 5 pts in Q2:19.
  • Sentiment at -8 pts would be the lowest reading since Q4:17, with the raft of disappointing economic data after the national elections in H1:19 taking a toll. The 2019 power cuts clearly have had a negative impact on confidence.
  • 2020 portends both further power cuts as well as electricity price hikes, rising unemployment (29.1% in Q3:19), slow wage growth, and higher taxes. All of this will constrain consumer spending. We therefore expect little improvement in business and consumer confidence in 2020, as policy reform progress will likely remain merely incremental. We expect household consumption expenditure of just 1.2% y/y in 2020, from an expected 1.1% y/y in 2019, supported largely by financially still robust high-income earners.
  • Moody’s is now widely expected to strip the sovereign of its only investment grade rating in March. Further potential downgrades from other rating agencies could also weigh on sentiment in 2020. The fiscal and electricity crises signal that government should speed up policy reforms. We forecast GDP growth of 0.8% y/y for 2020, from an estimate of 0.3% y/y in 2019.

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