South Africa Country Risk Report Q2 2016
We maintain our 2016 real GDP growth forecast at 1.5%. The absenceof load shedding at least until May 2016 justifies a minor increasefrom 1.4% in 2015, but strikes are likely to pick up in 2016. Thedeterioration in the business environment at end-2015 will extendinto 2016, depressing investment growth, while private consumptionremains limited by high unemployment and rate hikes.
Given the rand has continued to weaken despite the return of FinanceMinister Gordhan and food price pressures show no sign ofabating, inflation expectations are at risk of becoming disanchored.
To prevent this, the South African Reserve Bank will have to hikerates significantly to maintain its credibility hence we are rampingup our expectations to 75 basis points in hikes this year.
South Africa’s current account deficit has improved from 5.5% ofGDP in Q1-Q314 to 3.9% in Q1-Q315. Recent rand depreciationwill boost the current account data from Q415. But for a sustainableimprovement in the current account without experiencing a collapsein investment, savings must increase with the support of structuralreform, which we do not expect.
South Africa’s ruling African National Congress party will graduallyadopt more populist, leftwing policies over the next four years in anattempt to retain dwindling popular support. Policy proposals will bemainly rhetoric until the 2016 municipal elections, after which pointwe expect an increasing focus on genuinely distributive policies.
Major Forecast Changes
We have revised our 2015 growth forecast to 1.5% from 1.9%. Therevision is driven by Q215’s 1.3% y-o-y contraction and a furtherdeterioration in the domestic demand outlook, as the July tax ratehike kicks in. Medium-term growth will be undermined by the lackof structural reforms and a low savings rate.
- Executive Summary
- Core Views
- Major Forecast Changes
- Key Risks
- Chapter 1: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Index
- Economic Growth Outlook
- No Cure For Structural Ills
- We maintain our 2016 real GDP growth forecast at 1.6%. The absence of load shedding at least until May 2016 justifies a minor
- increase from 2015's 1.4%, but strikes are likely to pick up in 2016.
- GDP By Expenditure Outlook
- TABLE: GDP GROWTH FORECASTS
- TABLE: PRIVATE CONSUMPTION FORECASTS
- TABLE: GOVERNMENT CONSUMPTION FORECASTS
- TABLE: FIXED INVESTMENT FORECASTS
- TABLE: NET EXPORTS FORECASTS
- Monetary Policy
- Tightening The Monetary Screws Of Credibility
- Given that the rand has continued to weaken despite the return of Finance Minister Gordhan and food price pressures show no sign of
- abating, inflation expectations are at risk of becoming disanchored.
- Monetary Policy Framework
- Fiscal And Debt Outlook
- South Africa Is Not Junk
- Fitch's downgrading of South Africa to BBB- and S&P's move to negative outlook are in line with our negative reading of the Medium-
- Term Budget. However, we do not expect credit metrics to deteriorate significantly in the next 12 to 18 months, which would be required
- for an S&P downgrade to junk. South Africa's real crisis is a growth crisis, not a fiscal one.
- TABLE: MEDIUM-TERM BUDGET 2015, % OF GDP
- Structural Fiscal Position
- TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
- External Trade & Investment
- Current Account Still A Problem As Savings Too Low
- South Africa's current account deficit has improved from 5.5% of GDP in Q1-Q314 to 3.9% in Q1-Q315. Recent rand depreciation will
- boost the current account data from Q415.
- Outlook On External Position
- TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
- TABLE: TOP 5 GOODS IMPORTS IN 2014
- TABLE: TOP 5 GOODS EXPORTS IN 2014
- Chapter 2: 10-Year Forecast
- The South African Economy To 2025
- Underperformance Among EM Peers Ahead
- The South African economy will grow at a slow pace of around 2.5% annually over the coming ten years. Power shortages, industrial
- action and divestment in the mining sector will weigh on economic expansion, resulting in long-term economic underperformance versus
- emerging market peers.
- TABLE: LONG-TERM MACROECONOMIC FORECASTS
- Chapter 3: Political Outlook
- SWOT Analysis
- BMI Political Risk Index
- Domestic Politics
- ANC Rhetoric And The Post-Zuma Era
- The ANC will ramp up its populist rhetoric in the run-up to the 2016 municipal elections. Land reform in particular will resonate with the
- voters, which the ANC is losing to the Economic Freedom Fighters. Yet the ANC is likely more preoccupied with Zuma's succession, as
- Nkosazana Dlamini-Zuma is displacing Cyril Ramaphosa as the strongest contender for the ANC leadership.
- TABLE: POLITICAL OVERVIEW
- Long-Term Political Outlook
- Socio-Economic Issues To The Fore Over The Coming Decade
- Many issues threaten South Africa's political stability over the long term, not least the social and economic inequalities still stemming
- from the apartheid era. Although our core scenario envisages no major change to the political backdrop, we present a number of
- alternative scenarios.
- TABLE: PRESIDENT ZUMA'S APPROVAL RATINGS PER PROVINCE, %, NOVEMBER 24 2015
- Chapter 4: Operational Risk
- SWOT Analysis
- Operational Risk Index
- Operational Risk
- TABLE: OPERATIONAL RISK
- Trade Procedures And Governance
- TABLE: IMPORT AND EXPORT DOCUMENTS
- TABLE: TRADE PROCEDURES BREAKDOWN
- TABLE: SSA TRADE PROCEDURES AND GOVERNANCE RISKS
- Vulnerability To Crime
- Chapter 5: BMI Global Macro Outlook
- Global Macro Outlook
- Unfinished Business In 2016
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
- TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
- TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
- TABLE: SOUTH AFRICA – MACROECONOMIC DATA & FORECASTS