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Absa forecasts a sharply reduced growth rate for South Africa

February 8, 2020

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(3 minutes read)

· Absa, the third largest bank in South Africa, has sharply reduced its growth forecasts for South Africa in view of the weak business sentiment and expectation of a drought year

· In its first-quarter report, Absa cut its full-year 2019 GDP (gross domestic product) growth forecast to 0.3% from the 0.6% expected in October 2019. The 2020 projection also does not provide any cheer.

Absa, the third largest bank in South Africa, has sharply reduced its growth forecasts for South Africa in view of the weak business sentiment and expectation of a drought year.

In its first-quarter report, Absa cut its full-year 2019 GDP (gross domestic product) growth forecast to 0.3% from the 0.6% expected in October 2019. The 2020 projection also does not provide any cheer. It was reduced to 0.9% from 1.4%, with 2021 and 2022 is predicted to log at 1.2% as opposed to the 1.4% projected the previous quarter.

The fourth-quarter data is due March 3. Economists opine that it is also expected to be weak, coming in at around a 0.4% expansion in part due to renewed power cuts. However, inflation will be manageable at 4.1% in 2019, rising to 4.4% in 2020.

To kick-start the economy, on January 16, the South African Reserve Bank reduced the repo rate by 25 basis point to 6.25%. But it is to be seen how that would translate into lower rates of interest to industry and consumers to trigger a boosted growth in aggregate demand. According to Absa’s forecast, rates may hold stable for the coming days, as inflation could continue below the SARB’s expectations. Coupled with this is the overvalued rand, which lead to heavy capital outflows.