Financial services firm Absa has sharply reduced its growth forecasts for South Africa as persistently weak business sentiment, electricity supply issues and a drought weigh on the economy.
, surprising analysts, and Absa economists suggested that a divided Monetary Policy Committee, combined with low inflation and growth but substantial looming risks, made central bank policy decisions all the more unpredictable.
The rand is also "overvalued," the report suggested, which together with the prospect of large capital outflows in the first half of the year could weaken the currency back up to round 15 rands per U.S. dollar. Amid ballooning debt and an expanding fiscal deficit, however, the ratings agency last November cut its outlook for South Africa from "stable" to "negative," and the bank said Moody's is "more likely than not" to act on this and downgrade the country to sub-investment grade on March 27.State-owned energy utility Eskom continues to blight the macroeconomic picture.
A freight train leaves an Eskom power plant in Hendrina, South Africa, on February 22, 2018, after having discharged its load of coal."Load shedding is likely to continue and Eskom may need even more bailout money than that already allocated by the government. Structural reforms accelerated a little towards the end of last year, although progress overall has been slow, in part due to political contestation," the report said.
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