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S&P raises SA GDP forecast, warns it is still not enough

Mar 27 2018 12:33
Jan Cronje

Cape Town - S&P Global Ratings has raised SA’s GDP growth forecast for 2018 from 1% to 2%, but warned it is still not enough to decrease SA's high unemployment rate. 

“[The increase is] partly due to strengthening domestic and foreign investor sentiment following a change in the country's leadership and ensuing policy announcements. An ongoing global  upturn is also boosting demand for both commodities and manufactured goods,” the ratings agency said in a media statement on Tuesday morning. 

The increase in the growth rate forecast will be seen as positive news for the SA economy, after rival ratings agency Moody’s on Friday affirmed its credit rating on SA’s sovereign debt at above investment grade. 

“Improved investor sentiment has translated into a stronger rand, lower inflation, and lower bond yields, compared with our previous expectations. And a more favourable inflation outlook has given the central bank room to ease monetary policy,” it said. 

On Wednesday, the South African Reserve Bank’s monetary policy committee will announce whether it will reduce the repo rate. 

Most analysts Fin24 spoke to this week said they expected the bank to cut the rate by 25 basis points (or 0.25 percentage points), from 6.75% to 6.5%. 

Still too low 

S&P noted that, while it was increasing its forecast, a 2% growth rate was still relatively low for a country in SA's position.

“GDP growth of just above 2%, or 0.5% in per capita terms, is very low for a country at South Africa's income levels, and not sufficient to sustainably reduce its very high unemployment levels.”

SA's official unemployment rate is 26.7%. 

"The government has taken some steps to improve governance of state-owned enterprises (SOEs), which is an important development, but we are yet to see reform progress in other areas," said S&P Global Ratings senior economist Tatiana Lysenko.

A key constraint is the rigid labour market with its inefficient wage-setting mechanisms and high barriers to entry and exit," said Lysenko.

In January the World Bank had predicted that SA would grow by just 1.1% in 2018 - one of the lowest rates in sub-Saharan Africa.

Of the 43 countries that make up sub-Saharan Africa only two - Equatorial Guinea and Zimbabwe, were forecast to have lower growth rates than South African in 2018.

This forecast was made, however, before Cyril Ramaphosa became SA's new president and announced his maiden Cabinet.

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