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South Africa Country Risk Report Q1 2019

South Africa Country Risk Report Q1 2019

Growth will remain tepid in 2018 and 2019 Elevated unemployment and sluggish credit growth will weigh on private consumption, while fiscal consolidation limits government spending Elevated policy uncertainty and a poor operating environment will act as a continued headwind to investment

We expect South Africa's fiscal deficit to narrow, though at a slower pace than anticipated by the government Weak economic growth will act as a headwind to fiscal revenues

President Cyril Ramaphosa has made a concerted effort to balance meeting the demands of his domestic constituents with maintaining sufficiently business-friendly policy to encourage foreign investment For example, the final version of the Mining Charter pared back the cost to foreign mining firms of operating in South Africa compared to the bill put forward under the Zuma administration in 2017 Similarly, Ramaphosa's economic stimulus and recovery plan includes measures to improve the regulatory environment in the tourism and infrastructure sectors

That said, in an environment of slow growth, rising US interest rates (putting downward pressure on the rand) and with the approach of the general election in 2019, his ability to maintain this balance will come under increasing pressure Notably, we have already seen him struggling to calm foreign and domestic businesses' concerns about planned land reform, which we believe will continue to weigh on investment inflows in the coming quarters Forecast Changes

After disappointing H118 real GDP growth, we have further revised down our 2018 growth forecast to 0 7% from 1 3% previously This implies that growth will slow markedly between 2017 and 2018 While we had long anticipated a slowdown in the agricultural sector, it now appears that the manufacturing and mining sectors will see more tepid than expected growth

Key Risks

Should we see the trade war between the US and China accelerate, this would result in significantly more market 'risk off', placing even more substantial down-ward pressure on the exchange rate

SOE debt remains a continued challenge for the government While the sovereign is likely going to be able to bail out Eskom, if need be, doing so without forcing structural reforms at the company would significantly undermine investor sentiment and could send borrowing costs sharply higher in the near term


Executive Summary
Core Views
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
South African Economy Faces A Slow Rebound In 2019
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: TOP 5 GOODS IMPORTS IN 2017
TABLE: TOP 5 GOODS EXPORTS IN 2017
Monetary Policy
South Africa Set For Shift To Monetary Tightening In 2019
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Stimulus No Panacea For Struggling South African Economy
TABLE: RAMAPHOSA'S KEY PROPOSALS FROM SEPTEMBER 21 SPEECH
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
Currency Forecast
Inflation And Political Risk Ahead Of South Africa's 2019 Election To Weigh On Rand
TABLE: FITCH SOLUTIONS CURRENCY FORECAST
South Africa Country Risk Q1 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.Contents10-Year Forecast
The South African Economy To 2027
Underperformance Among EM Peers Ahead
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
2019 General Election Will Heighten Risks To Investment Environment In South Africa
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Structural Challenges Continue To Present Risks
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE: FREE TRADE AGREEMENTS
TABLE: TARIFF AND NON-TARIFF BARRIERS TO TRADE
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Utilities Network
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATIONS RISKS
TABLE: WATER RISKS
Global Macro Outlook
Contagion Risks Limited To EMs For Now
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: SOUTH AFRICA – MACROECONOMIC DATA AND FORECASTS

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