Merrill Lynch said the country's economy might have contracted more than previously estimated, falling at least 2 percent during the quarter as uncertainties on land reform and the independence of the South African Reserve Bank (Sarb) detracted the country from its policy focus.
The bank cut South Africa's growth forecast to 0.9 percent and 1.3 percent next year from 1.3 percent and 1.5 percent previously.
Ferhan Salman, Rukayat Yusuf, Bank of America Merrill Lynch economists in a research note said South Africa's economy was also hamstrung by weakening global conditions, which coincided with domestic electricity shortages and mining sector disruptions.
“We still expect investment to improve from a low base, but business confidence hinges as much on the global outlook as domestic efforts to restore policy stability and reform momentum,” Salman and Yusuf said.
“We have cut real export growth to just 0.7 percent from 2.6 percent in 2018, while also trimming domestic consumption to 1.6 percent from 1.8 percent.”
Merrill Lynch added that the markets were now awaiting the Cabinet reshuffle.
“We would view a reconfiguration and trimming of the Cabinet size as positive. Positive changes could set the stage for quick win reforms on anti-corruption efforts, visa regulation, reducing the cost of doing business and spectrum allocation, for example.”
The rand weakened further yesterday as markets became jittery over the delayed announcement of President Cyril Ramaphosa of his new executive.
The local currency weakened by more than 1 percent on the day.
Yields on benchmark government bonds due in 2026 rose 4 basis points to 8.43 percent.
Andre Botha, a senior dealer at TreasuryONE, said the rand was on the back foot, due to local factors as news of Cabinet reshuffles and the resignation of Eskom's chief executive filtered through over the weekend.
“This will place further scrutiny on the energy supplier and could be seen as a rand negative. With the delay of the Cabinet, it has caused a bit of uncertainty and the rand gets easily spooked by uncertainty,” Botha said.
Last week, Sarb also adjusted down its gross domestic product (GDP) to 1percent for this year from the 1.3percent it had forecast in March.
The central bank said the downward revision was based on negative first-quarter growth in mining and manufacturing. Data from Statistics South Africa has shown that retail sales fell 0.7 percent quarter-on-quarter in the first three months of the year, while manufacturing fell 2.4 percent and mining output decreased 3.4 percent.
The Organisation for Economic Co-operation and Development this month also slashed South Africa's growth forecast this year to 1.2 percent from 1.7 percent it estimated in March.
South Africa’s economy has not grown above 2 percent since 2013.
North West University Business School economist Raymond Parsons said early action from Ramaphosa’s administration was needed to boost business and consumer confidence.
“Stabilising Eskom and providing energy security are major factors in South Africa's future growth prospects, given the serious negative impact of load-shedding on GDP growth in the first quarter,” Parsons said.