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South Africa's GDP growth expected to hit 1.7% in 2018

South Africa's GDP growth expected to hit 1.7% in 2018

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20th June 2018

By: Reuters

  

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South Africa's economy is expected to recover from a poor start this year, rescued by stronger growth in the rest of the world, a Reuters poll found on Wednesday.

South African gross domestic product shrank 2.2% in the first quarter, led by a slowdown in agriculture and mining, after expanding 3.1% in the final three months of last year.

However, the survey of 24 economists taken in the past week forecast the economy would grow 1.7% this year. That was only 0.1 percentage point lower than predicted last month and up from a 1.3% forecast at the start of the year.

"The rest of the world is doing very, very well, so on the export side of things we will actually start doing better," said Busisiwe Radebe, an economist at Nedbank. "That is why you see that lift that we are expecting."

Last Friday, Fitch affirmed South Africa's sub-investment-grade credit rating but noted signs of improvement in governance and prospects of a mild cyclical upturn.

However, it doubts new President Cyril Ramaphosa's efforts will make a significant difference to the 1.7% growth it expects for this year.

South Africa needs growth levels multiple times faster than the forecast to make any meaningful reduction in unemployment. About a quarter of the labour force is currently out of work.

Employment prospects were made worse by a poor showing from South Africa's mines in April. Output fell 4.3% year-on-year in the industry, which employs large swathes of the country's largely unskilled labour force.

A United States-China trade conflict has escalated further and economists are wary of its effect on emerging market currencies.

Still, Miyelani Maluleke, an economist at Absa Capital, said domestic demand still had enough momentum to deliver GDP growth of 1.7% this year.

"There were some one-off factors that contributed to the first-quarter GDP contraction and the effect of those will likely wear off," Maluleke said.

The South African Reserve Bank is expected to keep its repo rate unchanged at 6.5% until 2020. It cut its main interest rate by 50 basis points to 6.50% in March.

Inflation is projected to average 4.9% this year and 5.2% next.

Edited by Reuters

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