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S&P raises growth outlook for South Africa

PUBLISHED: Tue, 27 Mar 2018 13:16:51 GMT

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By S&P Global Ratings

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PARIS (S&P Global Ratings) March 27, 2018–New leadership and ensuing policy announcements have boosted local and foreign investor confidence in South Africa, but structural challenges remain, according to S&P Global Ratings.

S&P Global Ratings has raised its GDP growth forecast for South Africa to 2% for 2018, from 1% previously, and 2.1% for 2019, from 1.7%. This is partly due to strengthening domestic and foreign investor sentiment following a change in the country’s leadership and ensuing policy announcements. An ongoing global upturn is also boosting demand for both commodities and manufactured goods. Improved investor sentiment has translated into a stronger rand, lower inflation, and lower bond yields, compared with our previous expectations. And a more favorable inflation outlook has given the central bank room to ease monetary policy.

“A revival in confidence and lower funding costs should support business investment, while a boost to real income from lower inflation bodes well for household spending. This should more than offset any drag on growth from the announced fiscal tightening,” said SP Global Ratings Senior Economist Tatiana Lysenko. Our revised growth forecast for 2018 also takes into account recent statistical releases. The economy finished 2017 on a high note, with annualized quarterly growth jumping to 3.1% in the fourth quarter. Moreover, historical revisions to national accounts show somewhat more resilience compared with data reported previously. Taken together, this implies a stronger carry-over this year and lifts 2018 growth. But the report questions how quickly reform efforts will ease structural constraints to economic growth. Structural challenges relate to labor and product market inefficiencies, including in the large state-owned enterprise (SOE) sector, and poor education outcomes and skills shortages. GDP growth of just above 2%, or 0.5% in per capita terms, is very low for a country at South Africa’s income levels, and not sufficient to sustainably reduce its very high unemployment levels.