South Africa: Country Economic Forecast: 16 Aug 2013

Oxford Economics
August 16, 2013
11 Pages - SKU: OFE5098622
Countries covered: South Africa

South Africa: Country Economic Forecast: 16 Aug 2013

Domestic demand is expected to remain the key driver of growth in 2013. Indicators of consumption have held up fairly well this year; domestic vehicle sales were strong in July, up 6.8% on the year, and retail sales have been reasonable in recent months. But stubborn inflation means consumption growth is slowing from last year’s 3.5% rise. Inflation ticked down to 5.5% in June, but is likely to rise again in the coming months as the weak exchange rate pushes up the price of imported consumer goods. There are tentative signs of improvement in investor sentiment as indicated by the SACCI measure of business confidence, which rose slightly in July. But this reading is still lower than at the start of the year. And although the seasonally adjusted PMI has been slightly above 50 for four consecutive months and manufacturing recovered somewhat in Q2, activity remains weak and capacity utilisation is still below the 2012 average. Therefore, we expect only modest investment growth of 3.4% in 2013. Although manufacturing improved in Q2, the mining sector remained sluggish. Output is being held back by work stoppages, which intensified during July and into August. Moreover, further unrest could materialise in the coming weeks as wage negotiations take place. Due partly to these troubles in the mining sector and lower precious metal prices, we expect the current account deficit to remain high this year, at 6.5% of GDP, exposing the currency to further downside risks in the near term.

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