Boost for Ramaphosa as South Africa Avoids Recession
First annual economic expansion for four years will be welcomed by new president
Growth indicates that Cyril Ramaphosa, who replaced Jacob Zuma as president last month, has inherited a stronger economy than many had thought © AFP
Joseph Cotterill in Johannesburg
Financial Times
South Africa’s economy expanded 1.3 per cent last year as growth accelerated for the first time in four years, exiting a slowdown that endangered the country’s credit rating.
Africa’s most industrialised economy also avoided a recession between 2016 and 2017, as had been feared, according to revised data published on Tuesday by the country’s statistics office.
The growth indicates that Cyril Ramaphosa, who replaced Jacob Zuma as president last month, has inherited a stronger economy than many had thought as he seeks to tackle corruption and reverse policies seen as hostile to investment.
Rampant graft and political infighting under Mr Zuma’s nine-year presidency was widely blamed for a slowdown in growth from 2.5 per cent in 2013 to just 0.6 per cent in 2016.
“South Africa now stands in sight of escaping the weak growth that has been pervasive since the global financial crisis,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered.
Business confidence has risen since Mr Ramaphosa, a former trade unionist turned tycoon, became president after Mr Zuma lost a long power battle in the ruling African National Congress.
Growth in the fourth quarter of 2017 surged 3.1 per cent on the previous three months as agricultural output rebounded from a drought and fixed capital investment increased.
However, the economy is still falling behind population growth of about 1.5 per cent, and faces structural obstacles such as a jobless rate of about 27 per cent.
The year-on-year improvement comes as South Africa seeks to avoid another downgrade when Moody’s updates its rating for the country later this month.
Fitch and S&P both cut South Africa’s credit rating below investment-grade last year, citing turmoil in the ANC over Mr Zuma’s future, the risks to public finances from mismanaged state-owned companies, as well as sluggish growth.
An additional cut by Moody’s would remove South Africa’s government bonds from vital indices used by investors in emerging-market debt.
“Rating agencies are much more likely to focus on structural reforms, and the higher growth rate that now looks possible over the coming years,” Ms Khan said.
“While not downplaying the economy’s still-considerable challenges, this should create a sound base for future improvements in South Africa’s rating,” she added.
The treasury last year forecast growth of 1.5 per cent this year and a return to more than 2 per cent growth by 2020. But Nhlanhla Nene, the finance minister, said earlier this week that the treasury was likely to raise these projections higher.
Also on Tuesday the ANC withdrew a motion for the government to buy out privately held shares in the central bank hours before it was due to be debated in parliament.
The main opposition Democratic Alliance said Moody’s told the party that any doubt cast over the independence of the South African Reserve Bank would be “strongly credit negative.”
Nationalisation of the central bank’s shares would not affect the setting of monetary policy but it has been seen as a populist measure by the ANC.
Growth indicates that Cyril Ramaphosa, who replaced Jacob Zuma as president last month, has inherited a stronger economy than many had thought © AFP
Joseph Cotterill in Johannesburg
Financial Times
South Africa’s economy expanded 1.3 per cent last year as growth accelerated for the first time in four years, exiting a slowdown that endangered the country’s credit rating.
Africa’s most industrialised economy also avoided a recession between 2016 and 2017, as had been feared, according to revised data published on Tuesday by the country’s statistics office.
The growth indicates that Cyril Ramaphosa, who replaced Jacob Zuma as president last month, has inherited a stronger economy than many had thought as he seeks to tackle corruption and reverse policies seen as hostile to investment.
Rampant graft and political infighting under Mr Zuma’s nine-year presidency was widely blamed for a slowdown in growth from 2.5 per cent in 2013 to just 0.6 per cent in 2016.
“South Africa now stands in sight of escaping the weak growth that has been pervasive since the global financial crisis,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered.
Business confidence has risen since Mr Ramaphosa, a former trade unionist turned tycoon, became president after Mr Zuma lost a long power battle in the ruling African National Congress.
Growth in the fourth quarter of 2017 surged 3.1 per cent on the previous three months as agricultural output rebounded from a drought and fixed capital investment increased.
However, the economy is still falling behind population growth of about 1.5 per cent, and faces structural obstacles such as a jobless rate of about 27 per cent.
The year-on-year improvement comes as South Africa seeks to avoid another downgrade when Moody’s updates its rating for the country later this month.
Fitch and S&P both cut South Africa’s credit rating below investment-grade last year, citing turmoil in the ANC over Mr Zuma’s future, the risks to public finances from mismanaged state-owned companies, as well as sluggish growth.
An additional cut by Moody’s would remove South Africa’s government bonds from vital indices used by investors in emerging-market debt.
“Rating agencies are much more likely to focus on structural reforms, and the higher growth rate that now looks possible over the coming years,” Ms Khan said.
“While not downplaying the economy’s still-considerable challenges, this should create a sound base for future improvements in South Africa’s rating,” she added.
The treasury last year forecast growth of 1.5 per cent this year and a return to more than 2 per cent growth by 2020. But Nhlanhla Nene, the finance minister, said earlier this week that the treasury was likely to raise these projections higher.
Also on Tuesday the ANC withdrew a motion for the government to buy out privately held shares in the central bank hours before it was due to be debated in parliament.
The main opposition Democratic Alliance said Moody’s told the party that any doubt cast over the independence of the South African Reserve Bank would be “strongly credit negative.”
Nationalisation of the central bank’s shares would not affect the setting of monetary policy but it has been seen as a populist measure by the ANC.
No comments:
Post a Comment