Banking group Barclays has trimmed its gross domestic product (GDP) growth outlook for South Africa to 2% for the year, outlining in its Quarterly Perspectives report for the second quarter that it expects modest growth to be evenly driven from the demand side, with particular support from a recovery in gross domestic fixed investment to 1.6%.

Reiterating that binding electricity shortages and the possibility of further labour unrest would continue to constrain the country’s growth potential, senior economist Peter Worthington told journalists on Wednesday that the unpredictability of both these factors made it difficult to forecast South Africa’s potential economic growth.

“South Africa appears to be muddling through a more challenging global environment…and remains constrained by familiar old issues. For example, load-shedding has been very light over the past few weeks, but the grid remains finely balanced.

“It is also not clear if wage negotiations in the key gold mining sector will be marked by a strike similar to the platinum sector strike last year, while a high degree of policy uncertainty also drags on confidence and, hence, on private investment trends,” he outlined during a media briefing, in Sandton.

The group nonetheless now saw these risks as evenly balanced, whereas before it viewed them as “tilted more to the downside”.

Despite the South African consumer remaining under pressure from weak job creation and tight credit conditions, Barclays expected domestic demand growth to accelerate to 1.8% this year from 0.6% in 2014, driven by a modest recovery in fixed investment spending.

Headline consumer price index inflation had likely bottomed, Worthington added, and could rise above 6% by year-end owing to the rising rand/dollar exchange rate, stronger crude prices and hefty electricity tariff hikes.

“Given our forecasts for these variables, we expect a sustained breach of the inflation target in 2016, although the South African Reserve Bank (Sarb) recently said it expected a breach only in the first quarter.

“Core inflation is likely to remain sticky and elevated,” he added.

Barclays on Wednesday maintained its prediction of a 25 basis-point hike in the repo rate by the Sarb in September but cautioned that this could be preceded by further interest rate increases.

“The Sarb recently shifted back to more hawkish rhetoric and, given our relatively bearish outlook on inflation, we are comfortable maintaining our call of a 25-point hike in September.

“However, we now see some risk that the hike could come earlier, whereas previously we saw the risks as tilted to later. We [thus] forecast a 25 basis-point hike in March, [another] in July and [yet another] in November,” Barclays stated.

Meanwhile, while the beneficial impact of falling oil prices on the current account was being “significantly” offset by falling prices for South Africa’s commodity exports, Worthington expected the current account deficit to narrow further this year.

This despite early monthly trade data, along with renewed downward pressure on coal and iron-ore prices, suggesting adverse risk to the country’s most recent current account deficit forecast of 4% of GDP.

“We [thus] revise that projection upward to 4.2% of GDP,” he noted.

Reflecting on the 2015/16 National Budget delivered by Finance Minister Nhlanhla Nene in February, Worthington said the Minister had aimed at “modest” fiscal consolidation, with the main budget deficit narrowing owing to modestly higher excise taxes and gentle expenditure cuts.

However, the proposed contribution holiday on the unemployment insurance fund would likely see the consolidated budget deficit track sideways.

“We see upside spending risks from the public sector pay talks, which are currently deadlocked, and possibly from the fiscal needs of troubled State-owned enterprises, such as Eskom,” he outlined.

Electricity shortages would, meanwhile, continue to scupper growth, despite Unit 6 of the Medupi coal-fired power station, in Limpopo, looking on track to provide nearly 800 MW of power by mid-year.

Encouragingly, the Majuba power station, in Mpumalanga, had been restored close to full capacity earlier than expected and load-shedding had abated somewhat in recent weeks.

“The supply situation remains very finely balanced and vulnerable to any further knocks, while management turmoil at Eskom is undermining confidence in the utility’s ability to address its financial and operational challenges,” said the economist.

Growth could be further stifled by an increasingly tense political environment, which Worthington believed would become more febrile in the run-up to the local government elections in the second quarter of 2016.

“Some government policy stances that do not, in our view, seem to make sense from an economic standpoint need to be seen through this political lens.Policy formulation and implementation are unlikely to improve during this period,” he held.