South African economy likely to improve slightly in H2, but political uncertainty a main drag on growth outlook

The South African economy began this year on a weak note, contracting 0.3 percent in the first quarter, but it rebounded notably in the following quarter on back of exports. The gross domestic product in the second quarter grew 0.8 percent sequentially. But the economic growth for the first half of 2016 stagnated when compared with the first half of 2015. This was predominantly because of falling gross fixed capital formation, noted Commerzbank in a research note.

A severe drought, persistent low prices of commodities, higher interest rates, sluggish global demand and high inflation are hurting the South African economy. Moreover, the rand has also strengthened significantly against the US dollar through 2016. Domestic demand in the country is subdued, while structural weakness and weakness in the educational system hurt a rapid rebound.

Companies continue to face challenges in finding qualified labor in spite of high and increasing jobless rate of about 27 percent. Productivity is declining. But the economic growth in the second half of 2016 might be underpinned by inventory restocking. The early indicators for the South African economy are mixed; however, they overall hint at slight improvement.

“We expect a gradual recovery and envisage growth of around 1.5 percent in 2017 after stagnation in 2016”, added Commerzbank.

Political uncertainty is the main drag on the nation’s growth outlook. But some of the latest news was quite positive. However, in the meantime, President Zuma is facing increasing pressure to resign because of allegations of bribery.