Johannesburg - South Africa is facing what could be a watershed year in 2017, with the ANC electing a new leader who will set the agenda for the party leading up to the next general election in 2019.
The Washington-based Institute of International Finance (IIF) said in a report over the weekend that confidence would remain fragile as political uncertainty during the year increased.
Latest estimates were that the South African economy might still struggle to muster growth of more than 1 percent in 2017.
However, latest economic indicators showed signs of green shoots appearing.
The IIF said growth should pick up this year as agriculture rebounds from last year’s drought, but a more sustainable investment-recovery was unlikely before 2018.
It said inflation was still outside its 3 to 6percent target range, and no interest rate cuts were likely until much later in the year.
BankservAfrica said although it was too early to say whether the latest figures signalled a change in trend, the improved rainfall in the northern parts of the country with the recovering commodity prices, suggested that the primary economy’s prospects were faring better. This sentiment was augmented by other industrial statistics, such as the January Manufacturing Purchasing Managers’ Index.
The rand’s continued strengthening against the dollar last week briefly broke through the R13 level last week, continuing to surprise the market.
Annabel Bishop, the chief economist at Investec, said this year the currency had strengthened to R12.88 against the dollar, a lot closer to purchasing power parity (PPP).
However, the rand was not expected to rapidly reach its PPP values, as many risks remain globally and domestically.
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“The IMF notes these, but indicates overall that the global economic outlook has improved in estimate, although it still encourages further structural reform.
"In South Africa, despite mild improvement in some areas, structural constraints limit productivity, and so South Africa’s achieving sustained faster growth.”
Bishop said one possible reason for the strong rand was a perception that the economy has finally turned the corner.
“While GDP (gross domestic product) contracted again, a number of high frequency indicators have started to send more positive signals about the economy.
"These include several months of successive increases in the leading indicator index, surveys of manufacturing conditions and vehicle sales.”
The IIF said South Africa would also be subject to a new round of credit rating reviews towards the end of the year, which could again raise market anxiety that the country may be down-graded to sub-investment grade.
It said the rating would largely depend on economic performance and progress on reducing the budget deficit and stabilising public debt ratios.