South Africa Business Forecast Report Q3 2014 - New Report Available

BMI sees the South African economy posting tepid growth over the medium term, with real GDP expanding by just 2.2% in 2014. Our below-consensus view is predicated on several factors including tepid investment sentiment and the ongoing retrenchment in the domestic gold mining sector.

South Africa's current account deficit will remain sizeable over the coming years, with BMI predicting that it will remain over 5.0% of GDP in 2014. Inflows to the capital and financial account have propped up the balance of payments in recent years, but with investor appetite for South African bonds waning, this trend can no longer be assured.

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T he ANC's dominant position is coming under threat ahead of legislative polls in April 2014. Dissatisfaction is rising among poor black South Africans who form the majority of the population. Nevertheless, we expect the ANC to win the election.

Major Forecast Changes

We are now forecasting 50 basis points of interest rate hikes for the remainder of the year, while previously we expect rates to remain on hold. This view is predicated on increased inflation risks which the South African Reserve Bank is seeking to contain.

Key Risks To Outlook

A sustained bout of global risk aversion with an attendant sharp outflow of portfolio funds. This would threaten South Africa's precarious balance of payments.

A sudden uptick in domestic political risk, such as an escalation of the industrial unrest that blighted various sectors in 2013.

A sustained period of high oil prices would exacerbate the alreadysizeable current account deficit.

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