Boston, MA -- (ReleaseWire) -- 02/18/2014 -- 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 factors including tepid investment sentiment and the 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 facing upside pressure from the weak rand 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 remain over 5.0% of GDP in 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 waning, this trend can no longer be assured.
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The 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 win the election.
Major Forecast Changes
No major forecast changes
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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