SA growth likely to stay below SSA, the world

Cape Town - South Africa’s economic growth is likely to remain below that of sub-Saharan Africa and the world, according to a macro economic report by Investec based on incoming data for the second half of 2017.

According to the report, structural impediments in many sub-Saharan countries, including South Africa, will limit the lift gained from the modest global upswing. Sub-Saharan Africa continues to experience subdued growth on the commodity price effect.

While commodity prices have recovered to some extent, many commodity exporters are reported to be finding commodity price levels still insufficient. Government debt levels have been rising, particularly in sub-Saharan countries where this has increased uncertainty and so negatively impacted investment.
 
South Africa suffered from a contraction in investment last year and government gross debt has escalated from 22% of gross domestic product (GDP) in 2008/09 to 45.7% of GDP in 2016/17, the report points out.

"Uncertainty has risen too on the political and economic policy front with SA currently seeing its key credit ratings split between investment grade and sub-investment grade," it states.
 
"South Africa has lost growth momentum, with the economy in a downward growth trend over the past several years. Economic growth of around 1.0% y/y is insufficient to prevent further credit rating downgrades, particularly if government debt to GDP ratios do not fall and there is insufficient SOE reform."

The agencies also point to concerns on GDP per capita and the possibility of future government policies undermining economic or fiscal strength - the latter weakening business confidence.

Rand and bond yields

The report says rand and bond yields were to a significant extent shielded from April’s credit rating downgrades by the strong risk on in financial markets as foreign investors were heavy purchasers of emerging market debt globally.

"Looking forward for the rand, much will depend on the global cycle, with the domestic currency at high risk of volatility, and weakness in particular from further credit rating downgrades and/or a risk-off global environment," states the report.

SA’s April credit rating downgrade is not expected to precipitate an interest rate hike this year, with the impact on the rand and bonds proving limited in the global risk-on period.

CPI inflation is likely to moderate in SA this year and next year as food prices moderate and demand pressures remain weak in the economy as economic growth likely remains below trend until 2022, the report concludes.