Economic growth in South Africa was weak in 2016 with growth being dragged down by political uncertainty, weak global demand, contractions in exports and a lack of structural reforms. Falling investments and persistent drought also added to the numerous challenges facing the country and political uncertainty have reduced investor confidence further. At 27% the unemployment rate is weighing on household consumption and driving inequalities.
South Africa avoided a credit downrating in December but the country remains under high scrutiny and risks a rating review if economic conditions do not improve. Despite avoiding a cut to junk status in 2016, the risk is still high in 2017, with a mid- and end-year chance to be cut due to slower growth. However, economic analysts believe that should finance minister Pravin Gordhan be removed from his position, chances are extremely high that such an action would lead to an instant cut to junk.
Political uncertainty remains the biggest risk facing the country, with infighting amongst the ruling party undermining the investment environment which negatively affects the rand and constrains GDP growth. Many analysts expect political unrest in December 2017, where several shocks can occur. However, several events still need to take place before then, including the party’s policy conference and consultative conference, and the State of the Nation address in November, all while the threat of a cabinet reshuffle hangs in the balance.
Despite all the challenges facing the country, there are some positives and numerous opportunities that lie ahead in 2017. The economy is forecast to grow by 1% during 2017, up from an estimated 0.5% in 2016. Growth is further predicted to reach 1.6% in 2018.
Some economists believe the economy is improving, albeit slowly. The interest rate hiking cycle may have peaked and interest rates could start going down towards the second half of 2017 and into 2018. In particular, the improvement in electricity production removes bottlenecks and should boost confidence and therefore investment, provided that political uncertainties dissipate.