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South Africa Country Risk Report Q2 2019

South Africa Country Risk Report Q2 2019

Key View:

Growth will accelerate slightly in 2019 and 2020 after very sluggish expansion in 2018. 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 rise in 2019, reflecting increased government spending in an election year, but narrow in the longer term, though at a slower pace than anticipated by the government.

President Cyril Ramaphosa has made a concerted effort to balance between meeting the demands of his domestic constituents and maintaining sufficiently business-friendly policy to encourage foreign investment. However, this will prove increasingly difficult in the run-up to elections scheduled for May 2019.

Thereafter much will depend on the outturn of the elections. A substantial win for the ruling party – with its overall share of the vote rising from the 2014 vote – would arguably give Ramaphosa a personal mandate, and act as a tailwind for more rapid reform, and thus stronger private-sector investment. A less obvious endorsement would mean that the stringent reforms necessary for a genuine improvement in parastatal operations – including substantial retrenchments, asset sales and potentially privatisation – would be deferred at least into the medium term, with a negative impact on South Africa's overall growth prospects.

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. Policymakers have insisted that they will not take on SEO debt, notably from Eskom. It is possible that the government will in fact decide to bail out Eskom, and but 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.South Africa Country Risk


Executive Summary
Core Views
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
South Africa: More Rapid Growth In 2019, But Serious Constraints Persist
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
Increasing Inflationary Pressures Will See South Africa Raise Rates In 2019
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Fiscal Consolidation In South Africa On Hold As Spending Pressures Remain High
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
Currency Forecast
ZAR: Low Growth And Poor Political Sentiment Will Continue To Weigh On Rand
TABLE: FITCH SOLUTIONS CURRENCY FORECAST
South Africa Country Risk Q2 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 is 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 2028
Underperformance Among EM Peers Ahead
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
South African Reform Process On Hold In Run-Up To Elections
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Inequality Remains Threat To Long-Term Political Stability
Operational Risk
TABLE: OPERATIONAL RISK
Conflict Risk
TABLE: MAIN ACTIVE TERROR GROUPS IN SOUTH AFRICA
TABLE: POLITICAL VIOLENCE RISK
TABLE: MAJOR CONFLICT FLASHPOINTS
TABLE: BUSINESS RESPONSE TO CONFLICT RISK
Transport Network
TABLE: ROAD RISKS
TABLE: RAIL RISKS
TABLE: PORTS AND INLAND WATERWAY RISKS
TABLE: AIR TRANSPORT RISKS
Global Macro Outlook
Volatility Feeding Into Slower Growth
TABLE: GLOBAL ASSUMPTIONS
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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