More pain seen as economists cut key SA forecasts

President Cyril Ramaphosa had hopes of lifting economic growth to 3% in 2018. Economists think that goal is even more unattainable than before.

Growth in gross domestic product will average 1.4% this year, according to the median prediction by 22 respondents in a Bloomberg survey, which takes place monthly. This less than the 1.5% forecast in the July poll and is the fourth consecutive reduction in the outlook, which peaked at 2% in April.

The estimates for both the current-account and budget deficits are wider than last month, the results showed.

Ramaphosa promised to stimulate growth and attract investment, fix state-owned enterprises, and root out the corruption that marked predecessor Jacob Zuma’s administration. While he’s made inroads on curbing graft and has received $35.5bn in funding pledges, he announced in July he would seek a constitutional amendment to allow expropriation of land without pay.

The move could undermine property rights and deter investment, some analysts say. Regulatory uncertainty is also making companies reticent to invest in industries such as mining, which plans to cut at least 14 000 more jobs imminently.

"To fix the economy, we need strong political and business leadership," as well as clarity on policy, land reform, and the restructure of the state, among other things, Peter Worthington, an economist at Absa Group in Johannesburg, said by phone.

"We need stronger domestic confidence and business investment" to boost growth, he said.

The unemployment rate in the economy is 27.2%, near a 15-year high, and GDP hasn’t expanded at more than 2% since 2013. The Reserve Bank reduced its economic growth forecast for this year to 1.2% in at its July meeting, below last year’s rate of 1.3%.

The projections are worrying and won’t make a dent in the jobless rate, with the country not taking advances of the recovery in the global economy while policy uncertainty deters investment, Governor Lesetja Kganyago said on Wednesday.

Business confidence has slumped each month after reaching a record high in January, its longest losing streak since 2011, as industries await real reforms under Ramaphosa’s administration.

While the index rose in July, a sustainable improvement in sentiment will depend on the removal of policy and political uncertainties, according to the South African Chamber of Commerce and Industry, which released the data on August 8.

Other highlights from the survey:

• The chances of a recession in the next 12 months increased to 33% from 30% predicted in the July survey.

• The prediction for the unemployment rate this year rose to 27.4% from July’s 27.3%.

• The outlook for the current-account deficit worsened to 3.5% of GDP from 3.4% before.

• The budget gap is seen at 3.7% of GDP from 3.6% previously.

 • Consumer inflation will average 4.7% in 2018 compared with a previous forecast of 4.8%.

What our economist says

"The new administration needs to improve the investment climate to unlock spending decisions held up by uncertainty during the Zuma years. Things are looking better for the second half of the year and 2019, but remain challenging in many areas, with platinum and gold prices falling." - Mark Bohlund, Bloomberg Economics

The metals are among the biggest foreign-exchange earners for South Africa, which is the world’s largest platinum producer.