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SA's low growth drags down Africa's prospects - research

Jan 12 2018 07:00
Lameez Omarjee

Cape Town – Low economic growth for South Africa, one of the two largest economies in Africa, means that overall economic growth for the continent will be constrained, according to research by Oxford Economics.

The research report on Africa’s growth and sovereign risk in 2018 was released this week. It indicated that Africa’s economic recovery will gain momentum in 2018, especially given policy reforms, the recovery and stabilisation of global commodity prices and easing of drought conditions, among others. Median growth is expected to increase from 4% in 2017 to 4.4% in 2018.

However, “subdued” growth in both Nigeria and South Africa will weigh down overall growth in the continent. On a weighted-average basis, GDP is expected to expand from 3.3% in 2017 to 3.4%.

“The South African economy has been plagued by political uncertainty and ailing business confidence, and is seen growing just 1.6% in 2018,” the report read.

The World Bank recently released its projections for growth, with South Africa’s being among the lowest in sub-Saharan Africa at 1.1%.

In Nigeria growth is negatively impacted by the slump in international energy prices and disruptions to domestic oil production. The World Bank has projected Nigeria’s growth to be 2.5%.

“Looking ahead, stronger growth in the continent’s largest economies (South Africa, Nigeria, Egypt) will have positive spillover effects into other countries in the region,” the report explained.

Sovereign risk under pressure

Sovereign risk remains under pressure in the Southern Africa region, and credit rating outlooks remain negative due to “spillover effects” from South Africa and some distinct factors, the report indicated.

“Most countries in the Southern African Customs Union (SACU) are highly dependent on trade-related receipts stemming from South African, and the notable drop in import demand in South Africa continues to weigh on fiscal and external balances.

“South Africa also forms an important export market for its neighbours, but demand remains depressed.”

SA outlook

Specific to South Africa, according to Momentum Investment’s (MMI) quarterly economic review, Cyril Ramaphosa being elected into the driving seat of the ANC has “rekindled hope” for political change and policy reform. This could help drive the SA economy to a higher growth plane.

Resilient global growth and a modest recovery in commodity prices could help boost growth to 1.5%, from below 1% in 2017, explained MMI economist Sanisha Packirisamy.

“A more convincing pick up in business confidence could provide an upside risk to investment growth, although this is more likely after the 2019 national elections, when policy uncertainty should recede somewhat.”

Further, the recent rally in the rand would help keep inflation “comfortably within the target band” in upcoming months, she said.  “Falling inflation potentially leaves room for additional modest monetary policy easing in 2018.”

MMI expects two possible rate cuts of 25bps at most in light of inflation and political uncertainty.

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africa  |  nigeria  |  sa economy  |  gdp

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