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Boston, MA -- (SBWIRE) -- 08/26/2013 -- BMI expects the South African economy to continue its uneven recovery over the medium term, with real GDP expected to grow by just 2.3% in 2013. Although the consumer sector is broadly holding up, the supply side is lagging, and there are widespread concerns that the recovery is not sufficiently broad-based. A key downside risk stems from industrial unrest in the mining sector.
We forecast that South Africa's repo rate will be kept steady at 5.00% until the end of the year. Although South Africa faces a weak growth outlook and risks are to the downside, inflation is likely to tick up during the course of 2013. This stagflationary scenario will likely force the Monetary Policy Committee to maintain the status quo over the coming months.
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Political risk is heightened amid industrial unrest in the mining sector. There is also ongoing debate regarding nationalisation of key industries including mining. However, we do not see nationalisation as an imminent threat.
Major Forecast Changes
We have revised our exchange rate forecast and now see the South African rand ending the year at ZAR10.5000/US$, compared with a previous ZAR9.5000/US$ projection.
Our monetary policy outlook has changed: We are now expecting 100 basis points of interest rate hikes in 2014 owing to the inflation risks stemming from the weak rand. Previously we expected rates to be kept on hold over the medium term.
Key Risks To Outlook
A sustained bout of global risk aversion with an attendant sharp outflow of portfolio funds would threaten South Africa's precarious balance of payments.
A sudden uptick in domestic political risk, such as an escalation of the industrial unrest blighting various sectors, is a risk.
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