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Boston, MA -- (SBWIRE) -- 11/26/2013 -- BMI sees the South African economy posting tepid growth over the medium term, with real GDP expanding by just 2.5% in 2014. Our below-consensus view is predicated on several concerning factors including the slowdown in China and ongoing retrenchment in the domestic gold mining sector.
The South African Reserve Bank (SARB) continues to face a difficult dilemma in its monetary policy deliberations. Inflation is above-target and economic growth is lacklustre - which together put the central bank in a stagflationary bind wherein neither a rate hike nor a rate cut is a palatable option. This being the case, we expect the repo rate to be kept on hold at 5.00% through 2014.
South Africa's current account deficit will remain sizeable over the coming years, with BMI predicting that it will be 6.6% of GDP in both 2013 and 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 and equities waning, this trend can no longer be assured.
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The African National Congress (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, and opposition parties are growing in popularity and number. We expect the opposition to gain an increased share of the vote at the polls, although the ANC will easily win the election.
Major Forecast Changes
We have adjusted our South African interest rate view following a downward revision of our economic growth forecasts. While previously we expected a rate hike in early 2014, we now anticipate weaker growth, meaning that rates are likely to stay on hold at 5.00%, and could even be cut in 2014.
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.
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