Report hints at better days

SOUTH Africa’s economy is set to stage a surprise recovery in 2017, despite having limped along for most of 2016.

This optimistic forecast is contained in a Deutsche Bank report released on Tuesday, when the country’s third quarter GDP figures were released.

Statistics SA data showed that the country had recorded 0.2% economic growth in the third quarter.

But Deutsche Bank forecasts that SA’s growth slump will lift in 2017 and expects the country to record 1.4% growth.

The third quarter growth figure came in lower than the 0.5% that was forecast.

Weak demand in manufacturing, and suppressed activity in mining and agriculture, led to the disappointing third quarter growth number.

However, Deutsche Bank economist Danelee Masia, who authored the report, said that, after three years of being in a downswing, SA would experience a growth boost in 2017 fuelled by net trade, inventory restocking and household demand, which had been weak throughout 2016.

Deutsche Bank predicts investment will improve in 2018, a year after the ANC has elected its new leadership, as there will be less uncertainty regarding policy.

“There are encouraging signs of a turning point having been reached,” Masia said. In addition, corporates had begun to rebuild profit margins through a combination of cutting jobs, curbing high wages and curtailing costs.

The Stats SA data showed that gross fixed capital formation fell 1%, continuing a trend that has been running for four quarters, as investment in transport equipment declined.

Cost-cutting in the corporate sector had led to weaker household consumption, which grew 2.6% compared to 1.4% in the second quarter. Although the Treasury had proposed a tax hike for 2017 to raise R28-billion, which is expected to place more pressure on squeezed households, Masia said subsiding inflation could enable the Reserve Bank to implement interest rate cuts.

Higher rainfall could also lead to an easing in food price inflation, which has been one of the biggest drivers of headline inflation in 2016.

Deutsche Bank expects inflation to ease to 5.4% in 2017, which is below the Reserve Bank’s forecast of 5.8%. — BDLive