SA’s growth forecast still 0.6%

World Bank expects 1.1% in 2018

THE WORLD Bank yesterday maintained its 0.6 percent growth forecast for South Africa as ratings agency S&P and the Bank of America Merrill Lynch said that the country would avert a premature downgrade with a return to growth and expectations that the upcoming Medium-Term Budget would stabilise future prospects.

The bank now expected the country to grow by 1.1 percent in 2018 and 1.7 percent in 2019. It said the country’s current account deficit would narrow with the surplus on the trade balance offsetting a shortfall in services, income, and the current transfer accounts.

“In South Africa, the current account deficit has been financed mainly through net portfolio investment inflows, as non-resident investors continued to acquire South African debt securities in a global search for yields,” the bank said.

S&P sovereign analyst Gardner Rusike said the country could revise its outlook to stable if economic growth or fiscal outcomes strengthened compared with its base-case projections.

The agency said the projected return to growth could stabilise the country’s rating.

“Our negative outlook reflects our view that political risks will remain elevated this year,” Rusike said.

S&P’s is expected to pronounce on its decision next month.

The projections come as Bank of America Merrill Lynch said this week that it believed rating agencies were likely to wait for the outcome of the ANC December national conference, the 2018/19 Budget measures and growth realisation to review their projections.

Merrill Lynch’s South Africa and Turkey analyst Ferhan Salman yesterday said that rating agencies would continue to monitor outlays from the Budget to service growing contingent liabilities.

“We estimate that these liabilities will reach R807 billion or about 18 percent of GDP by year-end, so would add to the risks weighing on debt sustainability and the fiscal outlook due to expenditure pressures,” Salman said.

Last month, data from StatisticsSA showed that the country had moved out of recession in the second quarter of the year after the economy expanded an annualised 2.5 percent in the second quarter of this year.

Uncertainty

However, the International Monetary Fund on Tuesday cut South Africa’s economic growth forecast for 2017 to 0.7 percent – down from its original forecast of 1 percent.

The group cited “rising political uncertainty” as the main factor behind the cut, stating that it has dented consumer and business confidence across the country.

Mark Mobius, an emerging markets fund manager at Franklin Templeton Investments, said that South Africa was no longer considered the quintessential market, as corruption and downgrades had battered the country’s image.

“There’s no question political noise and uncertainty have hurt the economy.

“As long as there’s this uncertainty and questions regarding the rule of law, both domestic money and international money will be cautious as regards investing in South Africa,” Mobius said.