SA likely to dodge a recession - but risk remains high

South Africa may succeed in
improving its 2016 economic
performance to avoid a
recession but the country
remains at risk.
According to Steven
Gamble, a director at Norton
Rose Fulbright Africa, global
uncertainty will also continue
to have a direct negative effect
on South Africa in the coming
months.
“This is due to the extent
of South Africa’s integration
into global financial markets.
Despite both the rand and the
JSE having recovered strongly
over the past few months,
South Africa’s current account
deficit leaves it vulnerable to
short-term capital outflows
amid changes in investors’ risk
perceptions and appetite,” he
told FTW.
He said it was expected
that the country would avoid a
recession in 2017 but that the
speed of any likely economic
recovery and medium-term
growth, already constrained
by structural impediments,
could be adversely affected
if international uncertainty
were to lead to increased risk
aversion and reduced investor
appetite towards emerging
markets.
“The threat of a downgrade
and the current political
uncertainty (including
elevated unemployment and
concerns regarding succession)
will continue to contribute
negatively to the speed of
any likely economic recovery
and medium-term growth in
South Africa,” said Gamble.
“However, we must assume that
most informed international
investors will already have
taken into account the possible
impact of a downgrade,
and may already have made
their investment decisions.
Therefore, it is likely that the
threat of the downgrade is
already taken into account,
to some extent, in the present
market levels.”
He said it was important,
however, to take into
account that Moody’s
had recently stated that
political instability
was now South
Africa’s primary
credit risk, and as a
consequence
placed five
stateowned
enterprises on review
for a downgrade over concerns
around their ability to raise
funding.
“Fluctuations in currency
remain another key factor in
South Africa. The rand has
regained much of its strength
from a year ago, making
South African commodities
considerably more expensive
than has been the case over
the last 12 months,” he said.
“The strengthening of the rand
and lack of stability in the
nation’s currency is a critical
risk in terms of the ability of
South Africa to export goods
and commodities on a more
consistent and sustainable
basis. It is difficult to see how
the government of South
Africa will address this
currency risk in the near
future.”