Research analyst firm Nomura has cut South Africa’s 2017 GDP forecast from 1.1% to just 0.2% following the firing of finance minister Pravin Gordhan, saying that there is little to convince investors that the country is heading to firmer economic ground.
In an update to investors post-Friday’s cabinet reshuffle, Nomura said that Zuma’s move to fire Gordhan in the reshuffle was a “clever” one, and has effectively solidified his position to come out on top at the elective conference at the end of the year.
The group expects there to be heated opposition to the reshuffle, but expects that nothing will ultimately come of it, as Zuma is secure in his majority within the ANC NEC.
Nomura said that it has long held the view that the market underestimated Zuma’s political strength, and put far too much focus on positive hopes, rather than facing the more dampened reality.
As such – as was the case with Nenegate in 2015 – while the market will be slow to catch up to the reality of the situation (accepting that Zuma is here to stay and that there is only about a 20% chance that he will step down before May 2018), things for South Africa’s economy will only get worse.
With high unemployment and a steady decline in real per capita wealth – with no turnaround in sight, and ratings downgrades all but guaranteed – some drastic changes to the forecasts for South Africa’s economy are needed.
These are the three biggest forecast changes the group highlighted:
- Nomura’s 2017 GDP growth forecast has been lowered to 0.2% from 1.1% previously. We lower our 2018 GDP forecast to 0.7% from 1.5% previously, and 2019 from 1.7% to 1.0%.
- The group has penciled in 50 basis points of rate hikes in May to remove the existing accommodation and take rates back to neutral. Further hikes beyond this are a risk but made less likely by the weak consumer and the fact the SARB will only offset second-round effects not first- round effects by backstopping the currency in level terms.
- The group has penciled in a new USDZAR forecast of R15.50 in the middle of the year, falling slightly to R14.50 at start-December but ending the year at R15.50 on the back of a Zuma slate win. R16.50 is still the forecast for the end of next year.
While the new ministers are yet to reveal any strategies or competencies in their new portfolios, Nomura’s baseline is that they are all Zuma loyalists, and the president has succeeded in capturing all vital arms of government.
The group also outlined the risks that lie ahead for the country – which makes for some pretty bleak reading:
- Watch for protest action at the weekend which has so far been moderate in size (Nomura thinks it will grow but should not become particularly widespread yet at least).
- Look out for any stronger “stand” from the Top 6 (Nomura doesn’t really expect any).
- Watch for the depth of splits within the ANC parliamentary caucus and within the NEC (Nomura does not expect any).
- Watch the schedule for no-confidence and impeachment votes and whether parliament is recalled early from Easter next week (Nomura thinks these may only appear at the start of May).
- Look out for policy announcements and changes and leaks to the media of developments within the Treasury that push ratings agencies and markets to more bearishness. Nuclear- and Gupta-related bank purchase and bank account issues will be especially important.
- Look at what happens to the populism policy narrative on land reform etc through the elective conference that is being used as a dividing wedge (Nomura thinks it will step up but sees no significant policy change in the short run).
- Look for ratings agencies’ decisions and comments next week (risks as above).