South Africa’s economy will get a boost from perkier commodity prices, a benign inflation outlook, and better rains for the agriculture sector this year, a Reuters poll found on Thursday last week.
The 27 economists in the poll suggested growth in SA would accelerate to 1.1% this year and 1.6% next year. The South African Reserve Bank (SARB) estimated GDP expanded 0.4% last year.
“Higher commodity prices in combination with lower inflation, stable interest rates and a recovery in the agricultural sector should drive 2017 growth somewhat stronger than in 2016,” said Elize Kruger at NKC African Economics. Twelve of 14 economists believed that growth in SA has left the slow expansion trap seen in previous quarters.
SA’s growth has been choppy in the past two years, with negative quarterly performances three different times on an annualised basis since 2014. However, KPMG’s Christie Viljoen says positive growth is expected, though it will be very low.
Economists back their claims with the annualised growth rate in the SARB’s leading indicator, which has turned positive, but they caution about the risks that lie ahead.
SA’s economy relies heavily on the wellbeing of the eurozone, its biggest trading partner as a single region, and China, its biggest trading partner as a single country.
South African Reserve Bank keeps repo rate at 7%
Meanwhile, SA’s Reserve Bank (Sarb) governor Lesetja Kganyago announced on Tuesday that the repo rate will remain unchanged at 7%.
The prime lending rate, which is the figure charged by banks to customers, will remain at 10.5%.
The central bank’s Monetary Policy Committee (MPC) has left rates unchanged at 7% since March last year.
“The MPC remains focused on the medium to long-term inflation outlook, but the deterioration of the shorter term outlook requires increased vigilance,” says Kganyago.
He says the bank is concerned about climbing inflation, but expects it to stabilise later this year and return to the target range of between 3 and 6%.
Kganyago also says growth remains a concern.
“While some improvement is anticipated over the forecast period, growth is expected to remain below potential.”