S.African economy could weaken further in the third quarter, warns economist - CNBC Africa

S.African economy could weaken further in the third quarter, warns economist

Southern Africa

by Trust Matsilele 0

President Zuma's political decisions shook confidence, heightened governance concerns, and increased policy uncertainty. PHOTO: Wikipedia

The International Monetary Fund revised South Africa’s growth prospects down to 0.1 per cent from 0.6 per cent for 2016.

“South Africa faces significant challenges and needs decisive action to revive growth," the IMF said in its latest economic review.”

[Read More: IMF cuts South Africa's 2016 growth forecast to 0.1 percent, says outlook sobering]

Among others, the IMF cited low growth amid China's slowdown and global financial volatility, political wrangling increasing policy uncertainty and electricity shortages easing as some of the reasons that have forced a downward revision.

“On the domestic front, leadership changes at the National Treasury last December and other political developments shook confidence, heightened governance concerns, and increased policy uncertainty. A severe drought in the region also significantly reduced agricultural output,” said IMF.

Isaac Matshego, economist at Nedbank says he was relieved following IMF’s announcement as it has been arguing, from the beginning of the year that South Africa’s weak environment was not conducive for growth.

“In the first quarter of the year, in sectors like agriculture, we could see that devastation of the drought and that’s when we can with the 0.2 per cent,” said Matshego.

Matshego warns that though South Africa is unlikely to fall into a recession, the country would see the economy contracting further in the third and fourth quarter.

The IMF has also warned that the South African Reserve Bank should not be quick to move the interest rate.

“We have changed our views now from 0.5 per cent we were expecting partly as a result of Brexit and we think that heightening the interest rate would force the rand to come under pressure.”

Matshego says the central bank has to revive the economy when it needs to and has to cool it when needs be.

The IMF has warned that, going forward, downside risks dominate and stem mainly from China, heightened global financial volatility, and domestic politics and policies that may reduce confidence.

“A muted recovery is expected from 2017, approaching 2 per cent to 2.5 per cent in the outer years as shocks dissipate and more power plants are completed; with these projections, unemployment will likely rise over the medium term,” warned the IMF. 

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