South Africa’s economic recovery ‘could be a long haul’

South Africa’s economy, which recently slid into recession, should improve later this year but weak confidence is likely to hamper any recovery according to trade credit insurer Atradius.

The group has issued a research paper, entitled ‘South Africa: More vulnerable to changes in market sentiment’, following last month’s figures suggesting that South African gross domestic product (GDP) contracted by -0.3% in the fourth quarter last year and decreased by a further -0.7% in Q1 2017.

The International Monetary Fund’s (IMF) latest forecast for the country projects a modest recovery in subsequent quarters, but expects only 1% growth for 2017 and edging up to 1.2% in 2018

The Atradius report is designed as a free resource for businesses, to brief them on the background to the current economic crisis facing the country and assess its potential for recovery.

The report notes that the financial rating downgrades and recent cabinet reshuffle further aggravate the already weak confidence in South Africa and could delay the country’s economic recovery. Economic growth in 2016 was only 0.3%, exacerbated by a severe drought and low mineral prices alongside weak domestic demand which was hampered by an unfavourable combination of high unemployment, inflation, household debt and interest rates.

Atradius economists believe that a recovery in agriculture and improved mineral prices could produce economic growth of 1.3% this year against the 1% forecast by the IMF. However, they acknowledge that alongside the improved forecast weakness in confidence and deteriorated market sentiment could continue to impact negatively on the economy overall.

The economic report warns that despite the forecast recovery, South Africa is not out of the woods: “For several years now economic performance has been weak in South Africa. External shocks have hit the country, but also structural constraints like infrastructure bottlenecks, labour market rigidities, widespread poverty and inequality are hindering economic growth.”

“The current political and policy volatility has adversely affected market sentiment in South Africa,” said Alun Moseley, a risk manager for Atradius Risk Services.
“Ongoing uncertainty is likely to weigh upon the economy’s prospects and all eyes will be closely monitoring potential vulnerabilities to assess its future performance.

“Businesses trading within South Africa need to ensure that they keep a close watch on any political, policy and economic changes which could impact the payment behaviour of their customers – whether through insolvencies, currency fluctuations, political ramifications or economic decline.

“There are always risks involved in trade, and any economy can cause issues, but the rewards can still be realised as long as the right precautions are put in place. A detailed knowledge and understanding of the wider market as well as individual customers is essential.”

This week has seen South Africa’s president, Jacob Zuma, narrowly survive a motion of no confidence against him in parliament. It was the sixth such vote of his presidency, but the first to be conducted by secret ballot. The latest bid to unseat Zuma follows allegations of corruption in addition to the economy’s move into recession. South Africa’s unemployment rate last year stood at 26.6%.

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