Growth targets reviewed due to slow quarter
SA’s economy probably struggled to gain traction in the second quarter after shrinking at the start of 2018, according to a Reuters poll of economists who said there was a one-in-three chance of recession this year.
About 30 economists polled expect Africa’s second-largest economy to grow by 1.4% in 2018 and by 1.9% in 2019, slightly lower than the median view forecast in July.
The SA Reserve Bank was even more pessimistic at its last monetary policy meeting in July. It forecast that the economy would expand by just 1.2% in 2018, sharply down from a 1.7% projection in May.
For the second quarter, the consensus view sees just 0.6% growth on a quarterly basis. That would be a feeble recovery from the 2.2% contraction recorded for January to March.
"The risk is that the services-driven sector, particularly financial services, fared poorly again in the second quarter, which could be the difference between whether SA avoids slipping into a recession or not," said BNP Paribas economist Jeffrey Schultz.
The first quarter marked SA’s worst quarterly contraction in nine years — a reminder of the huge challenge faced by President Cyril Ramaphosa in delivering robust long-term growth.
"A real year-on-year growth rate for the second quarter of around or below 0.8% would result in a negative seasonally adjusted and annualised growth value," said Frank Blackmore of EFConsult. "That would be the second quarter in a row of negative growth, and technically a recession."
The poll showed the Bank holding interest rates at 6.50% until at least end-2019 and then only hiking them by 25 basis points in 2020.
However, this remains a huge challenge for the rand, which has suffered contagion from a broad emerging market sell-off this year.
A separate Reuters poll showed emerging market currencies are unlikely to rebound from 2018’s downturn until 2019, in part on rising trade tensions and possible higher interest rates in big economies.
Inflation in SA is expected to remain within the Bank’s 3%-6% target band, averaging 4.7% in 2018 and 5.2% in 2019 and in 2020.