BusinessTech explains in their original article based on research from Nomura, that a relatively quiet first half of the year for South Africa is predicted, but that we should expect things to shake up in the second half of the year.
Here are their predictions:
There won’t be any interest rate cuts as long as the far end of inflation forecasts remain above 5.0%. The risk of rate hikes rides on any sharp weakness in the rand and deterioration in expectations and wages.
“We think the SARB still views policy rates as accommodative (just), but will only hike rates further if the currency weakens markedly. If not, rates should remain unchanged with no cuts on the forecast horizon as long as inflation is not fully anchored below 5.0% at the long end of the forecast.”Growth
There will be a slow recovery, showing low potential. Private sector investment will be key to any growth this year, but the same old risks remain. The predicted GDP growth for 2017 is forecast at 1.0%.
“We expect a slow fading of the political shocks suppressing growth and private sector investment, allowing growth to jump from 0.5% in 2016 to 1.0% in 2017, but this is still negative per capita income growth and the risks are again to the downside on potential political flare-ups.”Inflation
There will be a dip in inflation in the first half of the year following effects from the food base, but it is expected to rebound with a headline and core inflation remaining near the top end of the 6% targets.
“We expect the SARB to be on hold through 2017 and 2018, though the risks are for a hike if expectations and long-run inflation move higher which could happen on a sharper weakening in the currency.”Fiscal
The country’s fiscal status will be “okay” in the short run, but medium run risks are mounting and the country’s debt levels are grinding wider, Nomura said.
“The National Treasury remains hopeful that a recovery in per capita income growth will aid fiscal sustainability, but we do not see this and so we expect fiscal consolidation and debt stabilisation to stall.”External
The country’s current account will slowly widen back.
“Real net trade should be a contributor thanks to strong exports but offset by further destocking. Downside risks come from possible Trump protectionism. Put simply, it is hard to see any sources of stronger growth.Policies
There is potential for growth-boosting reforms to be introduced in 2017 but thanks to the political climate, the chances of this happening are very slim, Nomura said.
“The ANC will likely be internally focused on the five-yearly elective conference in December…Zuma is weakened but not weak – he has scope for a reshuffle early in the New Year – though, constrained by his own side, is unlikely to be able to remove the Finance Minister. Overall politics are likely to be a distraction from policy.”Ratings
Despite avoiding a cut to junk status in 2016, the risk is still very much alive in 2017, with a mid- and end-year chance to be cut due to slower growth.
However, should finance minister Pravin Gordhan be booted from his position, chances are extremely high that would lead to an instant cut to junk, Nomura warned.
“A 2016 rating reprieve shows agencies unable to decide the direction of growth and reforms and so allowing the benefit of the doubt. This should eventually run out – possibly in 2017 – and result in downgrades.”As we can see, many of these predictions came true.
So we would like to know: Given the country's recent credit rating downgrades, what plans or actions have you taken to help your business/family through this tough economic time?
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