Forecasts for South African growth were slashed in a Reuters poll of economists taken as rolling power shortages got worse, suggesting the poll’s median 40% chance the country has sunk into a recession may be too low.
South Africa’s economy has struggled in the nearly two years since President Cyril Ramaphosa took office. It shrank 0.6% last quarter, the second quarterly contraction in three quarters, and the poll conducted in the past week predicted 0.9% growth this quarter, much slower than the 1.4% forecast a month ago.
While the poll was being conducted, the country has been suffering its most severe blackouts in a decade, indicating the risk to forecasts is likely to be to the downside.
Barclays analysts wrote that they see clear downside risks in South Africa, given the ongoing decline in the South African Reserve Bank’s leading indicator for economic activity.
However, the economy is expected to grow 1.0% next year and 1.4% in 2021, better than this year’s 0.4%, according to the poll of 20 economists.
December will probably show this year’s average change in consumer prices slowed to 4.2%, 0.4 percentage points slower than in 2018.
The South Africa Reserve Bank kept its repo rate unchanged at 6.5% in a close decision last month, saying it wanted to see inflation expectations closer to the midpoint of its 3% to 6% target range.
The central bank will wait until May to cut rates by 25 basis points to 6.25%, which would be only the second cut in two years, the poll said.
The rand has lost over 3% since the year began, but retailers have found ways to avoid passing the cost of falling prices to their consumers.
“Add this to expectations for a benign commodity price outlook (such as oil), inflation is expected to remain moderate during next year,” said Thea Fourie, senior economist, sub-Saharan Africa at IHS Markit.
Consumer inflation will average a little higher at 4.6% in 2020 and 4.7% in 2021, the poll said. But 11 of 15 economists said the central bank overestimated the inflation pass-through from the rand over the past two years.
“SARB models have consistently overestimated this pass-through, thereby overestimating inflation,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered.
A separate Reuters poll last week suggested emerging-market currency gains would probably be dominated by high-yielding currencies rather than low-risk bets next year as economic growth finally recovers in response to lower interest rates.
However, the high-yielding rand might not even be part of that theme next year because its central bank has not stimulated the economy as much as other emerging-market central banks.