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SA’s growth forecasts slashed, recession risk high – poll

Reserve Bank probably behind its counter-cyclical curve.
Image: Waldo Swiegers, Bloomberg

Forecasts for South African growth were slashed in a Reuters poll of economists taken as rolling power shortages got worse, suggesting the poll’s median 40% chance the country has sunk into a recession may be too low.

South Africa‘s economy has struggled in the nearly two years since President Cyril Ramaphosa took office. It shrank 0.6% last quarter, the second quarterly contraction in three quarters, and the poll conducted in the past week predicted 0.9% growth this quarter, much slower than the 1.4% forecast a month ago.

While the poll was being conducted, the country has been suffering its most severe blackouts in a decade, indicating the risk to forecasts is likely to be to the downside.

Barclays analysts wrote that they see clear downside risks in South Africa, given the ongoing decline in the South African Reserve Bank’s leading indicator for economic activity.

However, the economy is expected to grow 1.0% next year and 1.4% in 2021, better than this year’s 0.4%, according to the poll of 20 economists.

December will probably show this year’s average change in consumer prices slowed to 4.2%, 0.4 percentage points slower than in 2018.

The South Africa Reserve Bank kept its repo rate unchanged at 6.5% in a close decision last month, saying it wanted to see inflation expectations closer to the midpoint of its 3% to 6% target range.

The central bank will wait until May to cut rates by 25 basis points to 6.25%, which would be only the second cut in two years, the poll said.

The rand has lost over 3% since the year began, but retailers have found ways to avoid passing the cost of falling prices to their consumers.

“Add this to expectations for a benign commodity price outlook (such as oil), inflation is expected to remain moderate during next year,” said Thea Fourie, senior economist, sub-Saharan Africa at IHS Markit.

Consumer inflation will average a little higher at 4.6% in 2020 and 4.7% in 2021, the poll said. But 11 of 15 economists said the central bank overestimated the inflation pass-through from the rand over the past two years.

“SARB models have consistently overestimated this pass-through, thereby overestimating inflation,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered.

A separate Reuters poll last week suggested emerging-market currency gains would probably be dominated by high-yielding currencies rather than low-risk bets next year as economic growth finally recovers in response to lower interest rates.

However, the high-yielding rand might not even be part of that theme next year because its central bank has not stimulated the economy as much as other emerging-market central banks.

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COMMENTS   11

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No surprises here , Failed State , thanks to the ANC!

Don’t stress, another exaggerated prediction.

Look at the Palladium, Platinum and Gold prices, we have them.

Look at the ZAR today.

Not all doom and gloom.

Oh, and for Xmas look at Cobalt … someone needs lots of it for Batteries

and rates will be cut..

and foreigners will hunt yield in SA because they do not earn any overseas …and US markets will under perform in 2020

Wait for EWC, that will completely destroy the economy.

>However, the economy is expected to grow 1.0% next year and 1.4% in 2021, better than this year’s 0.4%, according to the poll of 20 economists.

Where do they even find these Economists, every year it’s the same story. Growth picks up into the future and as we get closer to the end of the year it is inevitably revised downwards.

Hanging on the Christmas tree.

The toxic combination of a relatively high interest rate, and the resulting relatively strong currency, is poisoning the business environment. This poison-pill is a triple-whammy for local businesses. Exports are uncompetitive, the cost of capital is prohibitively expensive plus the cheap imports are demolishing whatever remained of the competitive advantage. Local businesses are forced to swallow this poisoned chalice because Luthuli House needs investors to fund communist ideals. The Reserve Bank has to lure foreign investors into buying government bonds while they are apprehensive of the risks of investing in Luthuli House.

Treasury has abandoned the idea that taxes will provide cashflow. They have reverted to borrowing to fill the void in the budget. They have abandoned the idea that local businesses should be stimulated to provide taxes and jobs. They decided to rather stimulate foreign interest in our bonds.

The unemployed, the shareholders and the entrepreneurs are paying the price for a terribly inept, incompetent and criminal Luthuli House.

Our relatively high interest rate reflects the impact that the ANC has on the trust in our financial system. The support for the ANC depends on the social grant and the public wage bill. They have reverted to the only solution they know, they are bribing foreigners to buy our bonds. The ANC is bribing bondholders to bail out the ANC, to the detriment of the unemployed.

Great comment. Your last sentence nails it !

Maybe an exaggerated prediction.

Look at the Palladium, Platinum and Gold prices.

We have it!!!

If i owned 5 businesses and all were bankrupt, yet i managed to keep funding them with other peoples money (taxpayers) why should i care if i showed a growth or not when my pool of funds is never ending, I become a bureaucrat, i keep spending and buying fancy cars every year, earn millions and to top it all, i receive a 13th cheque..

Not only are all SOE’s bankrupt the ANC led Government has sold it’s soul to corruption..Our country is bankrupt. The entire system from National to local is a pandemic disease so bad it’s reached a point of no return..There is no way forward because there is no will evident. If you cannot repair potholes, how are you expected to save an economy? We are just another failed African State waiting fir an IMF bailout..Unless Squirrel pulls a bunny from the hat! Lets hope he owns a bit if magic..It’s been lacking since his inauguration

End of comments.

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