The South African economy struggles to launch

SOUTH AFRICA - Forecast 18 Oct 2018 by Iraj Abedian

Summary and Assumptions
• South Africa’s growth: South Africa is in a technical recession. This is the result of two consecutive quarterly contractions in the country’s gross domestic product during H1 2018. President Ramaphosa presented the country’s economic stimulus package during end-September 2018, and while we expect limited impact in terms of boosting economic growth, it is a good start.
• Mining: Despite the sector’s recent struggles, the latest Mining Charter by Minister Gwede Mantashe has had a positive response from Minerals Council South Africa. This, and the improved policy certainty that comes with it, are likely to encourage more investment in mining.
• Households: Domestic demand was muted during the second quarter of 2018, but high frequency data shows that retail sales grew positively for the first two months of Q3.
• The rand, inflation & interest rates: Consumer inflation has remained within the Reserve Bank’s target band in 2018. But risks coming from the weaker rand and higher international oil prices are likely to result in a higher inflation prints for the remainder of the year. However, the economy is also ailing, and the Reserve Bank would be reluctant to put even more pressure on the system. Interest rates are likely to stay put.
• Current account: The relatively weaker rand will continue to support the value of South African exports, hence we expect a surplus in the trade balance in Q3, which will lead to a contained deficit in the country’s current account in Q3.

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