Yet another negative signal for the economy of South Africa came last week by the International Monetary Fund (IMF), which has almost halved the forecast of economic growth for the country, reducing it from 1.3% in October, to 0, 7%. An alarming element, which corresponds to a percentage point lower than the economic growth rate forecast by the National Treasury, for the current year.
The slowdown to 0.7% also means fewer opportunities to work for the more than 8.4 million unemployed South Africans, many of whom have long since given up looking for a job. In addition, the IMF has also revised of 1.8% the projection for South Africa economic growth for 2017, from 2.1% estimated last October.
The factors, which led the Washington-based financial institution to revise downwards their growth forecasts of South Africa, are the collapse of commodity prices, the main source of revenues for the state treasury, and the worsening of the level of public debt, increased by almost 50% of GDP, compared with 26% in 2009, when the current President Jacob Zuma was elected.
On the other hand, it is no mystery that the second economy of the African continent is facing an unprecedented economic and financial crisis.
A crisis that in recent months has decimated the value of the rand and dragged the African country on the brink of recession, which had already touched lightly in the third quarter, affected by the shortage of electricity, the weak global demand, the fall in commodity prices and the drought.
In all of this, investors are losing trust in the ability of the South African government to stop the fall, whereas it is increasingly clear that Pretoria is exhausting all options to stem the crisis.
According to the latest data released by Statistics South Africa, last November, industrial production fell by 1% compared to 2014, while that of the manufacturing sector declined for eight of the first eleven months of 2015.
Moreover, the projections of the South African Reserve Bank show that in 2015 the economy grew by 1.4%, the lowest rate recorded since the recession of 2009.
The rating downgrade
Besides all this, another unknown factor hangs over troubled South African economic scenario: the risk of possible credit rating downgrade at “junk”.
A hypothesis that seems increasingly likely, after that last month, the agency Standard & Poor’s revised the outlook on the South Africa BBB rating to negative from stable, considering the possibility of further downgrade in the short term. The same rating is also assigned by Fitch, but with a stable outlook. Moody’s, instead, shall assess South African sovereign debt one level higher, Baa2.
For his part, President Zuma has fueled investor concerns with a policy somewhat improvised, as evidenced by what happened on December 9, when he unexpectedly removed from the Finance Minister, Nhlanhla Nene, replacing it with David van Rooyen, a political little known, former mayor of Merafong, in the northwest of the country.
And then, to retrace his steps and assign the task to the 66-year-old Pravin Ghordian, known to international markets also for leading, from 2009 to May 2014, the South African Ministry of Finance.
The rand’s collapse
In the two days following removal of Nene, the rand had fallen by 9.1%, marking the record low of the time (16.0543 against the dollar), while the stock index of reference had lost 170 billion rand ( ten billion dollars) and the yields on ten-year bonds were down in one fell swoop over 100 basis points.
Then, last Monday, the South African currency has reached another negative peak (17.9169 against the dollar) falling by 9% from the previous week, the highest fall since 2008 and the most conspicuous recorded by Bloomberg between emerging markets and the major currencies.
All this, while the turbulence in the Chinese market and the decline in the US stock market restrained investors, ever more convinced that during the meeting of next January 28, the central bank is going to increase the interest rate by at least 25 basis points, to safeguard the objectives of inflation range.
To complete the picture, the economic analysis of investment bank Renaissance Capital (RenCap), assuming as the South African economy is close to leave to Egypt, the place of the second largest economy in Africa.
The economic prospects of the Rainbow Nation are even more meager when compared with the rest of the continent, where this year the majority of African countries will record a GDP growth of over 4%, while the best performance of South Africa will not exceed the 1.5%.
Yet another negative signal for the economy of South Africa came last week by the International Monetary Fund (IMF), which has almost halved the forecast of economic growth for the country, reducing it from 1.3% in October, to 0, 7%. An alarming element, which corresponds to a percentage point lower than the economic growth rate forecast by the National Treasury, for the current year.
