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'.
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.