South African economy likely to record slow growth this year

In the second quarter of 2016, the South African economy rebounded markedly after posting a weak report in the previous quarter. The economy expanded 0.8 percent sequentially in the second quarter, following a 0.3 percent contraction in the first quarter. But this is unlikely to be the beginning of a robust recovery yet, as economic confidence has worsened again markedly, according to Commerzbank.

The PMI dropped quite below the 50 mark in August, while the economic sentiment continues to be close to a 13-year low. The worsening confidence is also because of the rise in political uncertainty. This centres on the Finance Minister Pravin Gordhan. The finance minister keeps close ties with the country’s central bank and influences the appointments onto the monetary policy committee, noted Commerzbank. Recently, there have been rise in calls amongst ANC members to restrict the SARB’s independence. On the other hand, for the financial markets Finance Minister Gordhan is the guarantor of stability oriented politics.

After the robust second quarter, the 2016 as a whole is expected to register small overall expansion of 0.5 percent, stated Commerzbank. Last year, economic output had grown just 1.3 percent that might constitute renewed deterioration. After commodity prices rebounded slightly in recent times, domestic political issues might have to be overcome for additional notable growth to be recorded next year. Presently, growth rates are expected at 1.5 percent.

“Due to the general difficulties of the Emerging Market countries and falling growth amongst important trade partners (above all China) the downside risk for the economic outlook remains high. The country is still at risk of a downgrade by the rating agencies”, added Commerzbank.