Fitch cuts growth fore­cast to 0.7 per­cent

The Star Early Edition - - BUSINESS REPORT - Ka­belo Khu­malo

FITCH Rat­ings sub­sidiary BMI Re­search yes­ter­day joined the World Bank in re­vis­ing South Africa’s eco­nomic growth for this year to 0.7 per­cent from its pre­vi­ous fore­cast of 1 per­cent, warn­ing that pur­su­ing a nu­clear pro­gramme would put sig­nif­i­cant strain on the slug­gish econ­omy.

BMI said although it ex­pected the govern­ment to re­main com­mit­ted to ex­pand­ing the coun­try’s nu­clear ca­pac­ity, no new nu­clear ca­pac­ity would come on­line over its 10-year fore­cast pe­riod.

“The sig­nif­i­cantly higher costs as­so­ci­ated with nu­clear tech­nol­ogy com­pared to coal­fired or re­new­able elec­tric­ity gen­er­a­tion mean that the fi­nan­cial head­winds fac­ing Eskom, and the govern­ment’s weak­en­ing abil­ity to pro­vide sup­port to the com­pany, will place a sig­nif­i­cant fi­nan­cial strain on the coun­try if the nu­clear power plants are pur­sued,” the com­pany said.

The govern­ment said in Fe­bru­ary it ex­pected the econ­omy to grow 1.3 per­cent this year, 2 per­cent next year and 2.2 per­cent in 2019.

The coun­try is in a tech­ni­cal re­ces­sion af­ter the econ­omy con­tracted 0.7 per­cent in the first quar­ter of this year, fol­low­ing a con­trac­tion of 0.3 per­cent in the fourth quar­ter of 2016.

BMI’s re­vi­sion of the coun­try’s growth prospects are in line with the dom­i­nant sen­ti­ment among econ­o­mists. Ear­lier this month, the World Bank slashed the coun­try’s eco­nomic growth out­look for this year to 0.6 per­cent, down 0.5 per­cent­age points from its Jan­uary fore­cast of 1.1 per­cent.

First Na­tional Bank has also toned down its op­ti­mism about growth prospects, say­ing growth would set­tle at 0.6 per­cent this year, down from its pre­vi­ous pre­dic­tion of 0.7 per­cent.

Only the In­ter­na­tional Mone­tary Fund ex­pects growth to av­er­age 1 per­cent, up from its pre­vi­ous fore­cast of 0.8 per­cent, based on an­tic­i­pated higher agri­cul­tural pro­duc­tion this year. BMI said it ex­pected the govern­ment’s nu­clear agenda to face head­winds over the com­ing years be­cause of le­gal ob­sta­cles, public op­po­si­tion, fi­nan­cial con­straints at Eskom and the con­struc­tion de­lays typ­i­cally as­so­ci­ated with nu­clear power plants. “Even if South Africa does se­cure con­tracts for new nu­clear ca­pac­ity over the com­ing year, we ex­pect the de­vel­op­ment of projects to be hin­dered by the in­hibitive costs of the tech­nol­ogy, de­lays to con­struc­tion and cost over­runs, which are com­mon­place with nu­clear projects across the world.”

Mean­while, the gover­nor of the Re­serve Bank told a tele­vi­sion sta­tion that the cy­cle of in­ter­est rate in­creases has ended. John Ash­bourne, the African econ­o­mist at Cap­i­tal Eco­nom­ics, said he ex­pected the cen­tral bank to lower its key pol­icy rate from 7 per­cent to 6.75 per­cent when its Mone­tary Pol­icy Com­mit­tee meets in July.

“We ex­pect that the July cut will be the be­gin­ning of an eas­ing cy­cle that will take the pol­icy rate from 7 per­cent down to 6 per­cent by the end of 2018. This is more than the con­sen­sus ex­pects, and will pro­vide a wel­come boost to growth in the econ­omy,” Ash­bourne said.

PHOTO: BLOOMBERG

Pedes­tri­ans pass street ad­ver­tis­ing for First Na­tional Bank. The bank has fore­cast that the econ­omy will grow 0.6 per­cent this year, down from its ear­lier pre­dic­tion of 0.7 per­cent.

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