South Africa’s economy will pick up next year as commodity prices rise and a historic drought eases, according to the consensus forecast in a Reuters poll, but it is still short of the necessary investor confidence to grow faster.
The poll, taken in the past three days and released on Thursday, predicted the economy for Africa’s most developed nation would expand 1.1 percent next year from 0.4 percent this year, the same consensus forecast made last month.
The latest gross domestic product data for the third quarter showed the economy expanded by only 0.2 percent compared with a revised 3.5 percent in the second quarter.
Jeffrey Schultz, economist at BNP Paribas, wrote in a note that he expected growth to gain speed next year, but the trends in gross domestic fixed investment remain concerning.
This type of investment is normally capital spending, such as buying new machinery for future production. The private sector makes up nearly two-thirds of the gross domestic fixed investment contribution to GDP.
“A lack of policy coherence and an increasingly uncertain political environment continue to weigh on both the willingness and ability of domestic corporates to invest meaningfully in the economy,” Schultz said.
The Johannesburg all-share stock market index has climbed over 90 percent since the 2008/09 recession, but companies have been reluctant to invest in the economy even when their balance sheets are healthy.
That is not a problem just in South Africa. It also affects developed economies like Japan, the United States and United Kingdom.
Lacklustre growth and unsettling political noise has worried the three major ratings agencies this year.
The country got a reprieve last week from Standard & Poor’s and Fitch, which rates South Africa debt just one step above junk. Moody’s rating is two notches above.
Still, Schultz expects growth to accelerate, boosted mainly by improvements in agriculture and higher commodity prices. Southern Africa is recovering from its worst drought in history, which wilted crops and stoked food inflation.
The country is expected to benefit from slower inflation next year, because the central bank will have room to keep interest rates stable at 7 percent for next year.
Inflation is expected to slow to 5.5 percent for next year – 0.3 percentage points lower than last month’s consensus – from a median 6.3 percent of estimates for this year.