South Africa’s economy still struggling

The latest set of business surveys suggest that, having contracted in the first quarter of this year, South Africa’s economy continued to struggle in Q2. Inflation remains a concern but with activity so weak and the rand now stable, the Reserve Bank is likely to take a more cautious approach to raising interest rates than we had previously anticipated. We now expect policy rates to be raised by a further 50bp to 6.0% by the end of this year (from a previous forecast of 6.5%). Our end-2015 forecast is unchanged at 7.0%.