Less than 1% growth forecast for SA

Johannesburg – South Africa’s economic growth is expected to rebound in 2017, but will remain below 1%, according to BMI Research.

The Fitch Group company has revised down the GDP growth forecast from 1% to 0.7%.

Challenges to growth include higher unemployment, lower consumption and limited government spending due to fiscal consolidation. Policy uncertainty and a “poor operating environment” will also discourage investment, the research said.

BMI expects the fiscal deficit to narrow, but at a slower pace than expected as the weak economic growth will limit fiscal revenue.

Although economic growth activity in the mining and agricultural sectors drive growth during the first quarter, this may be counteracted in the second quarter with commodity prices falling.

“Coupled with recent less business friendly rhetoric and policy (not least the new mining charter), this will weigh on investment to an even greater extent than we had expected, and temper growth,” the report read.

Policy uncertainty

With the run-up to the ANC elective conference in December, BMI expects President Jacob Zuma to lean towards the left in terms of policy decisions in order to gain support.

“Should this be the case, we could see significant fiscal slippage and continued more populist rhetoric by the president, presenting downside risks to investment but upside risks to government consumption.”

READ: Race for ANC top job split down the middle - Credit Suisse

There recently held ANC policy conference was characterised by deadlocks on key policy decisions, including the mining charter and land reform. Financial services company Credit Suisse is of the view that debates on policy will continue until the elective conference and may include more radical proposals.

BMI highlighted that the risk of a downgrade of local currency debt remains a concern. This would see capital outflows, result in the weakening of the rand and raise borrowing costs. A downgrade would add weight to the already low business confidence.

ALSO READ: Economists underwhelmed by Gigaba's economic action plan

Analysts previously told Fin24 that Finance Minister Gigaba’s 14-point plan to revive the economy lacks the “profound change” needed to boost confidence as it intends to do.

Gigaba also stated that he welcomed a commission of inquiry into state capture of state-owned enterprises in an effort to restore investor confidence and address investor perceptions.

Rate cuts

BMI forecasts a rate cut by 25 basis points before year-end and another cut in 2018. “Our expectations for stagnating economic growth and cooling inflation will give the bank room to shift to a policy of monetary easing.”

But BMI said that a rate cut would only happen at a gradual pace.

Economists are of the view that although recessionary conditions and low inflation would prompt a rate cut, the currency is still at risk to shocks by a rate hike in the US and other political uncertainty locally.

Stanlib chief economist Kevin lings said that the economy is still vulnerable to investor sentiments. Stanlib expects a two rate cuts of 25 basis points over the next six to nine months.

Investec chief economist Annabel Bishop said that even though the hiking cycle is over, the Reserve Bank will move carefully and may be more dovish in the second half of the year. 

SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.

Read Fin24's top stories trending on Twitter:

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For 14 free days, you can have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today. Thereafter you will be billed R75 per month. You can cancel anytime and if you cancel within 14 days you won't be billed. 
Subscribe to News24
Rand - Dollar
17.77
-0.8%
Rand - Pound
20.13
+0.5%
Rand - Euro
17.57
+0.2%
Rand - Aus dollar
11.55
-0.7%
Rand - Yen
0.12
-0.4%
Gold
1,715.78
-0.6%
Silver
20.66
-1.9%
Palladium
2,260.50
-2.7%
Platinum
921.00
-1.3%
Brent Crude
91.80
+3.2%
Top 40
59,202
-1.1%
All Share
65,613
-1.1%
Resource 10
63,687
-1.4%
Industrial 25
79,239
-1.1%
Financial 15
13,961
-0.7%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders