Fitch Solutions expects slow SA economic rebound in 2019
SA’s economy will have a slow rebound in 2019 and policy uncertainty will persist until the 2019 election, a subsidiary of the Fitch Group has warned.
While economic growth will continue to slow in 2018 on falling agricultural sector output and rising inflation “the growth outlook will brighten modestly in 2019”, said Fitch Solutions in a report published on Thursday.
Fitch Solutions revised down its growth forecast from 1.3% to 0.7% for 2018, in line with the Reserve Bank’s forecasts. The 2019 forecast has also been revised down from 2.1% to 1.7%.
Importantly, Fitch Solutions is separate from credit-rating agency Fitch Ratings. However, warnings that the economy will remain in the doldrums may attract the attention of creditrating agencies.
Further credit-rating downgrades would mean SA’s cost of borrowing would increase.
Echoing the World Bank on Wednesday, Fitch Solutions said President Cyril Ramaphosa's economic stimulus package would have a “limited” effect.
The plan was announced after the release of shock statistics showing SA entered a recession in the second quarter for the first time since the global financial crisis.
“While the government has taken steps to reassure investors and domestic businesses as part of a wide-ranging stimulus programme, policy uncertainty is likely to persist ahead of the 2019 election, which will only be exacerbated by more challenging external dynamics,” said the report.
The economy has struggled to breach the 2% mark since 2013 while unemployment has edged closer to the 30% mark.
Ramaphosa’s plan encompasses growth-enhancing reform, reprioritising public spending to create jobs, setting up an infrastructure fund, improving education and health, and investing in municipal social infrastructure.
However, details on how spending will be reprioritised will be made clear at the medium-term budget policy statement to be delivered at the end of October.
Politics ahead of 2019’s election remains the biggest challenge, Fitch Solutions said. “Ramaphosa has taken pains to balance the demands of his domestic constituents while attempting to shore up confidence among foreign investors.
“However, we believe that maintaining the balance will become increasingly untenable as the election approaches,” the report warns.