South Africa growth forecast cut on Brexit vote

Financial management firm Nomura has cut South Africa’s growth forecast for 2016 to a mere 0.5%, following the British vote to leave to the European Union.

Among all emerging markets, South Africa is seen to be potentially facing the hardest time, due to its exposure to the European markets, the financial group said.

In the lead up to the Brexit vote, Nomura said a vote to exit the EU would cut 0.1% off of South Africa’s already strained economic growth. Following the vote, and market consultation, this was revised to 0.2% being cut off.

However, other pre-Brexit adjustments adding 0.1% to South Africa’s GDP equation led to a net drop off of 0.1% as previously expected. It is one of the few markets to experience a bit of a “bounce back”.

Economic adjustments

According to the group “sentiment shock” tied to the countries linked to the UK and EU have been factored in.

“Our previous report laid out that trade linkages were highest in Turkey and Poland but that Czech Republic and Hungary were more open economies, and the balance of the shock through the eurozone was also important,” the group said.

“Weaker economies such as South Africa would arguably feel the biggest compounding effect here and come out worse.”

“Today’s numbers showed weakening across the board with the exception of South Africa bouncing back and Russia also showing some strength. It’s a bit early and close to the referendum to fully read across, but we think this does indicate Central and Eastern Europe is the area to watch.”

While not going as far as entering a recession, the South African Reserve Bank said the Brexit vote would have an impact on South Africa’s growth.

The country is currently expected to grow by a paltry 0.6% according to SARB – a position revised down before the Brexit vote even took place. This puts all growth expectations in the region of 0.5% and 0.7% for 2016.

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South Africa growth forecast cut on Brexit vote