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South Africa Country Risk Report Q4 2018

South Africa Country Risk Report Q4 2018

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.

Even after the December 2017 National Elective Conference, the likelihood of continued party infighting is high. While Ramaphosa won the ANC party presidency, a strong showing by the opposing pro-Zuma faction has undercut the strength of his political mandate and suggests limited scope for significant structural reform.

Major Forecast Changes

After a disappointing Q118 real GDP growth reading, we have revised down our 2018 growth forecast to 1.3%. This implies growth will remain flat 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

We revised down our ZAR forecast for 2018. Rising inflation and limited scope for monetary tightening are likely to continue to undermine the attractiveness of real interest rates while a poor economic performance is increasingly sapping 'Ramaphoria'.

Key Risks

Should we see a trade war between the US and one of its key trade partners (China, Mexico, Canada or the EU), this would result in significantly more market 'risk off', placing even more substantial downward pressure on the exchange rate.

SOE debt remains a continued challenge for the government. While the sovereign is likely going to be able to bailout 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
Major Forecast Changes
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Slow Q1 Activity Points To Economic Headwinds
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
Returning Inflation Will Accelerate SARB Hikes
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Deficits Will Remain Wide In Face Of Opposition To Cuts
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
South Africa Country Risk Q4 2018ContentsCurrency Forecast
ZAR: Technical Break Signals Further Downside Ahead
TABLE: FITCH SOLUTIONS SOUTH AFRICAN RAND FORECAST
10-Year Forecast
The South African Economy To 2027
Underperformance Among EM Peers Ahead
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Strong Start To Reform Agenda Belies Uphill Battle Ahead
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Structural Obstacles To Persist
Global Macro Outlook
Pressure On EM Grows, As Do Divergences
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 & FORECASTS

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