S.African data offers recovery hope, obstacles remain - CNBC Africa

S.African data offers recovery hope, obstacles remain

Southern Africa

by Reuters 0

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South Africa's economy has shown signs of picking up in the past two months, data showed on Thursday, but analysts say global economic weakness and domestic political tensions could make the reprieve short-lived.

Business confidence has ticked up, according to data on Thursday, moving further away from a recent 23-year trough, helped by improved merchandise export and import volumes, while manufacturing output turned around a deficit from the previous month.

But "the economy is still looking very bad. There are signs that the world economy is possibly stabilising, but that won't save us from slower growth this year," said household and consumer strategist at First Rand Bank John Loos.

The continent's most industrialised economy is expected to grow only 0.8 percent in 2016, the central bank says, far off the 5 percent that the government targets to bring down widespread unemployment and high levels of poverty.

The South African Chamber of Commerce and Industry (SACCI)said its Business Confidence Index (BCI) rose to 81.2 in March from 80.1 the previous month, but noted that business conditions remained challenging.

The index slipped to 79.6 in December, its lowest in 23 years, after President Jacob Zuma changed two finance ministers within a week when financial markets were already worried about U.S. interest rate policy.

Figures published by Stats South Africa showed manufacturing output grew by 1.9 percent year-on-year in February, and by 1.3 percent on a monthly basis, surprising forecasters who predicted a second consecutive contraction.

"Today’s figure is clearly good news for South Africa’s fragile economy. But forward-looking indicators suggest that we should be cautious about declaring a turnaround for the sector," economists at Capital Economics said in a note.


Analysts said manufacturing output was probably helped by the weaker rand, which has fallen by more than 25 percent in the least 12 months, and that the effect would be temporary.

"Over time a weak rand doesn't do much good. It causes inflation, drives skills away from the country, and also drives sentiment down," FNB analyst John Loots said.

Analysts also say investors could be deterred by the political crisis that has engulfed President Jacob Zuma, who has been censured by the constitutional court over spending on home rennovations. Zuma avoided impeachment on Tuesday thanks to the scale of the ruling party's parliamentary majority.

South Africa is under pressure to boost growth as it looks avoid credit ratings downgrade that the central bank has said would hit the economy hard.

On Wednesday Standard & Poor's, which along with Fitch has South Africa a notch above subinvestment grade, cut its 2016 growth forecast warning that weak growth and recent political upheaval were risks to the rating.