A resurgent rand later this year, a possible pause in rate hikes and less elevated power cuts were expected to lift South Africa’s economy to a 1.5% gross domestic product (GDP) growth this year, Bank of America said yesterday, citing a projected weakness in the US dollar that will prop up emerging markets towards a re-rated commodities outlook.
Tatonga Rusike, a sub-Saharan analyst for Bank of America, said: “South Africans will head to the polls later this year and it is expected that although struggling with plummeting confidence in its policies, the ruling ANC party will form a coalition with smaller opposition political parties.” The 2024 elections were likely to herald “a busy year for SA”.
“It is going to be a busy year for SA. We think that GDP will improve to 1.5% growth this year relative to 0.5% recorded last year,” he said.
This would be on account of fewer power cuts as some of the problematic power plants such as Kusile were now back online. Companies and households have also been investing in alternative power sources such as solar.
Aiding this would be the interest rate cutting programme by the South African Reserve Bank (SARB) that is expected in the second half of the current year. While other global central banks were poised to start rate cutting earlier, the SARB was set to delay this to the second half of the year or to May at the earliest.
Rusike said inflation was also expected to average 5% this year compared with 6% in 2023.
David Hauner, the head of cross asset strategy for emerging markets at Bank of America, said: “A stronger rand was expected to contribute to this as the US dollar was expected to weaken against other major currencies such as the euro.The rand would close the year at around R17.80, benefiting from an expected uplift across emerging markets.
“The rand will close the year at R17.80 to the dollar. It is in line with our dollar view. South Africa will perform better because the rand has started on a weak footing,” added Hauner.
This was in spite of the 2024 elections that were likely to “be noisy”, according to Rusike. Nonetheless, the 2024 elections were set to reproduce the status quo as the opposition is too fragmented, with any resultant coalition likely to push for reforms.
Earlier this weak, the rand hit a three-month low at R19.9 to the dollar but recovered to R18.84 on Wednesday, rising more than 1% on the prior day.
Analysts at Alexforbes have also said that the first half of 2024 “will likely be dominated by election campaigning” ahead of the elections expected between May and August. The second half of the current year, on the other hand, “will be dominated by global developments” as risk sentiment towards emerging markets is expected to turn positive.
According to the 2024 South Africa Fund Manager Survey released by Bank of America yesterday, weak logistic infrastructure and a rising debt path as well as fiscal dominance headwinds would be the major drawbacks for the southern African economic powerhouse.
South African businesses are under strain from international macroeconomic volatility and domestic headwinds, including load shedding, and this is hitting their bottom lines.
A report by PwC this week said local company profits and dividends declined 17.8% year-on-year and 33.2% year-on-year, respectively, in quarter three 2023.
BUSINESS REPORT