JOHANNESBURG - Global investment banking group, Goldman Sachs, is backing South Africa’s economy to grow more than 2.4 percent this year, but warned that the current round of public sector wage negotiations presents a litmus test for the Ramaphosa’s presidency.
Goldman economist Andrew Matheny said the lender might raise its forecast for South Africa’s economic growth again as risks to its previous estimate “as being tilted to the upside”.
“The market does not yet appear to be pricing in meaningful structural reforms and we see scope for a significant further re-rating higher of growth expectations,” Matheny said.
“Our own growth forecast for 2018 stands above consensus at 2.4 percent, with risks tilted to the upside.”
Goldman ealier this year said South Africa would be the big emerging market story of 2018.
The lender revised its growth forecast for 2018 from 1.5 percent to 2.4 percent post Cyril Ramaphosa’s election.
South Africa has seen a surge in both consumer and business confidence seen the elevation of Ramaphosa as first head of the ANC and subsequently as head of state.
However, activity data released last week suggested that growth faltered in the first quarter.
Mining production decreased 8.4 percent year-on-year in March. It was the biggest fall in mining production since March of 2016.
Manufacturing output fell 1.3 percent year-on-year in March, the first drop in manufacturing production since September last year.
John Ashbourne, an Africa economist, said the recent activity data all suggest that South Africa’s economy stumbled in the first quarter.
“We however, maintain our above-consensus GDP growth forecast of 2 percent over 2018 as a whole,” Ashbourne said. “Improved consumer and business confidence following the election of Cyril Ramaphosa also point to stronger growth over the coming quarters.”
The rand has also rallied since Ramaphoa’s election, but a resurgent dollar in the past few weeks has seen the local unit on a back foot, but ended last week on the front foot.
Bianca Botes, an analyst at Peregrine Treasury Solutions, said the US dollar remained resilient. “While the rand is trading at its strongest levels in weeks, one should not miss the opportunity of such resilience to cover open exposure, as the euphoria is not expected to last,” Botes said.
The World Bank last month bucked the trend on South Africa's growth projection, saying that the economy would grow by a modest 1.4 percent as prevailing optimism had not yet translated into investments.
The Washington-based lender said it expected the gross domestic product (GDP) to grow 1.8 percent next year and 1.9 percent in 2020. The bank's previous estimates were 1.1 percent growth for this year and 1.7 percent for 2019.
In March, the SA Reserve Bank said it expected the economy to grow at 1.7 percent for 2018 from a previous projection of 1.4 percent previously, 1.5 percent next year and 2 percent in 2020.
Ratings agency S&P Global Rating has also shown optimistic outlook on South Africa’s economy and said growth would reach a growth of 2 percent this year
Mamello Matikinca, FNB's chief economist, said she was forecasting first-quarter gross domestic product (GDP) to contract by approximately 1 percent quarter on quarter.
“However, important to note that much of the weakness stems from base effects, and despite the expected contraction in the first quarter, overall annual growth is still on track for approximately 1.9 percent in 2018,” Matikinca. First quarter GDP data is due for release on 5 June.
Goldman said it would monitor the unfolding land reform process, state-owned policy, mining charter and the acrimonious public sector wage negotiations.
The lender said the public sector wage negations presented a stern test on Ramaphosa’s administration’s resolve to rein in public debt.
Matheny said South Africa’s public wage bill had expanded at an above-inflation pace for many years.
“The ongoing negotiations are an early trial for Ramaphosa’s negotiations with organised labour, and, therefore, their outcome is likely to be interpreted as something of a litmus test for the President’s ability and willingness to undertake difficult structural reforms that involve reaching an agreement with unions down the line.
- BUSINESS REPORT