Absa: South Africa’s long road to recovery

Absa, a corporate and investment banking division, has recently increased its growth forecast for South Africa's economy, providing a glimmer of hope amidst challenging times. The bank has adjusted its projections for this year and the next by 0.4 per cent and 0.3 per cent, respectively. Additionally, Absa anticipates that headline inflation in South Africa will continue to ease, with potential rate cuts earmarked from March 2024. To delve deeper into these numbers and the factors influencing them, Miyelani Maluleke, a Macro-Economist at Absa, sheds light on the state of the South African economy. Despite facing significant challenges such as an escalation in power cuts, the country has shown resilience and unexpected growth in the first half of the year. Maluleke highlights that the economy has defied odds, with GDP showing a 0.4 per cent increase in Q1 and indications of positive growth continuing into Q2. This unexpected growth can be attributed to private sector initiatives investing in backup power generation, demonstrating the country's ability to adapt and overcome hurdles. However, Maluleke stresses that while necessary investments in energy are being made for survival, there remains a need for broader-based investments to stimulate economic growth. He emphasizes the importance of growth-enhancing reforms in areas such as infrastructure and service delivery to boost business confidence and attract more investments. On the topic of the rand's performance, Maluleke discusses the currency's volatility and its impact on Absa's forecasts. While acknowledging the inherent unpredictability of FX markets, he points out that prudential regulations act as a buffer against excessive depreciation of the rand. As for interest rates, Absa's projected March cut in South Africa's repo rate for 2024 is subject to various factors, including inflation trajectory, rand stability, and global economic conditions. Maluleke emphasizes the presence of uncertainty and the possibility of the South African Reserve Bank needing to adjust its monetary policy based on evolving circumstances. Despite expectations of a gradual easing cycle starting in March next year, he underscores the need for ongoing assessment and flexibility in response to changing economic dynamics. The road to recovery for South Africa's economy remains a challenging journey, marked by resilience, adaptation, and the ongoing quest for sustainable growth.