South African economy stumbles, oil price falls - Capital Economics
Africa Economics

South African economy stumbles, oil price falls

Africa Economics Weekly
Written by Virag Forizs
Q2 GDP figures released in South Africa this week weren’t quite as ugly as we had feared, which has prompted us to revise up our full year growth forecast (to -8.5% from -11.0%). Even so, the country still suffered one of the largest contractions in output in Q2 of any major economy and more timely data suggest that the recovery has since slowed. That’s likely to prompt an interest rate cut at the Reserve Bank’s meeting next week. Elsewhere, the renewed fall in oil prices is putting pressure on African producers’ finances, pushing Angola a step closer to default.

Seeing the good, the bad and the ugly in SA data

Figures released this week provided little cause for optimism about South Africa’s prospects for a strong rebound in activity. The slew of terrible data might, at least, prompt policymakers to lend more support to the economy.

The huge fall in South Africa’s output in Q2 was not as colossal as India’s and Peru’s. (See Chart 1. Note that the chart shows the q/q growth figure, not the annualized number.) And it was not quite as deep as we feared. This has prompted us to revise up our forecast for South African GDP growth to a 8.5% contraction in 2020 (previously a fall of 11.0%).

Chart 1: GDP (Q2, % q/q)

Sources: Refinitiv, Capital Economics

Even so, South Africa still suffered one of the largest contractions in GDP of any major economy. What’s more, hard activity data released this week showed that the pace of recovery had started to slow in July. And high-frequency figures suggest that activity has remained stuck well below pre-virus levels.

The authorities are mulling over additional fiscal support, reportedly hoping to firm up plans in the next month. But even President Cyril Ramaphosa has acknowledged that the “government has to a large extent run out of money”, so another round of a publicly-funded stimulus seems unlikely.

Without further fiscal support, monetary policymakers may once again do the heavy lifting. And subdued inflation leaves space for additional monetary easing. Even though policymakers struck a less dovish tone at the last MPC meeting in July, we are sticking to our view that interest rates will be lowered further. We’ve penciled in two 25bp cuts by year-end, including one next Thursday, which would take the repo rate to 3.00%.

Oil producers under pressure

The near 12% fall in the price of Brent crude since the beginning of this month (to $39.7 pb at the time of writing), puts renewed pressure on major producers in the region.

We’ve noted before that Nigeria’s budget deficit this year is likely to be much larger than the government expects (to the tune of 7% of GDP). But even so, support from multilateral institutions will ease the strains in public finances caused by a slump in oil prices. And the public debt burden remains relatively low. At any rate, we’re more concerned about the trajectory of the debt ratio in the medium term.

By contrast, immediate financing problems are coming to the fore in Angola. The kwanza weakened by 4.4% against the dollar since the start of September, further reducing the ability of the government to service debt denominated in foreign currency. (In 2019, external debt was equivalent to 76.5% of GDP.) Credit rating agencies Fitch and Moody’s recently downgraded Angola’s long-term foreign currency debt further. And yields on the country’s sovereign dollar bonds edged higher, exacerbating debt-servicing problems. The possibility of default, something we’ve previously raised, is growing by the day.

The week ahead

Apart from the MPC meeting of the South African Reserve Bank next week, where we expect a 25bp cut (to 3.25%), figures released from Nigeria will probably show that inflation picked up from 12.8% y/y in July to 13.4% y/y in August.


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (BST)

Previous*

Median*

CE Forecasts*

14th Sep

No Significant Data

15th Sep

Nga

CPI (Aug.)

(+12.8%)

(+13.4%)

16th Sep

Gha

GDP (Q2)

(+4.9%)

 

SA

Retail Sales (Jul.)

(12.00)

+6.4%(-7.5%)

+2.5%(-6.5%)

17th Sep

SA

Interest Rate Announcement (Sep.)

3.50%

3.25%

3.25%

18th Sep

No Significant Data

Also expected during this period:

7th – 25th

Nga

Current Account (Q2, USD)

-4.9bn

10th – 17th

Nam

GDP (Q2, q/q(y/y))

(-0.8%)

10th – 17th

Bot

GDP (Q2, q/q(y/y))

(+2.6%)

11th – 18th

Uga

GDP (Q2, q/q(y/y))

(+1.8%)

11th – 18th

Bot

CPI (Aug.)

(+0.9%)

+0.3%(+1.4%)

15th – 22nd

Nam

CPI (Aug.)

(+2.1%)

+0.4%(+2.8%)

15th – 22nd

Ang

CPI (Aug.)

(+22.2%)

+2.4(+23.3%)

Selected future data releases and events

22nd Sep

Nga

Interest Rate Announcement (Sep.)

12.50%

23rd Sep

Mau

Interest Rate Announcement (Sep.)

1.85%

24th Sep

Zam

CPI (Sep.)

(+15.5%)

28th Sep

Ang

Interest Rate Announcement (Sep.)

15.50%

 

Gha

Interest Rate Announcement (Sep.)

14.50%

29th Sep

Ken

Interest Rate Announcement (Sep.)

7.00%

30th Sep

SA

CPI (Aug.)

(09.00)

+1.3%(+3.2%)

 

SA

Trade Balance (Aug., SAAR)

(13.00)

+37.4b

 

SA

Budget (Aug., SAAR)

(13.00)

-134.5b

 

Uga

CPI (Sep.)

(+4.6%)

 

Ken

CPI (Sep.)

+0.2%(+4.4%)

 

Ken

GDP (Q2)

(+4.9%)

1st Oct

SA

Absa Manufacturing PMI (Sep.)

(10.00)

57.3

 

SA

Electricity Production (Aug.)

(12.00)

5th Oct

Ken

Markit/Stanbic Bank PMI (Sep.)

(08.30)

53.0

7th Oct

Mau

CPI (Sep.)

(+1.5%)

8th Oct

Uga

Interest Rate Announcement

7.00%

 

Bot

Interest Rate Announcement

4.25%

Also expected during this period:

3rd – 10th

SA

SACCI Business Confidence (Sep.)

10th– 17th

Tan

CPI (Sep.)

10th – 17th

Bot

CPI (Sep.)

*m/m(y/y) unless otherwise stated

Sources: Bloomberg, Capital Economics

Main Economic & Market Forecasts

Table 1: GDP & Consumer Prices (% y/y)

 

Share of

World (1)

2009-18

Ave.

GDP

Inflation

2019

2020f

2021f

2022f

2019

2020f

2021f

2022f

Nigeria

0.86

4.4

2.2

-5.5

3.5

3.0

11.4

13.0

12.5

12.0

South Africa

0.57

1.5

0.2

-8.5

4.0

2.0

4.1

3.0

3.0

3.3

Ethiopia

0.17

9.7

9.0

2.5

8.0

9.0

15.7

19.0

14.0

10.0

Ghana

0.15

7.0

6.5

0.0

6.5

6.0

8.7

10.0

9.0

8.0

Angola

0.14

2.4

-0.3

-6.0

3.0

2.0

17.3

22.5

20.0

17.5

Kenya

0.14

5.6

5.6

0.5

5.5

6.5

5.2

5.0

5.0

5.0

Tanzania

0.14

6.5

5.6

1.5

6.0

6.0

3.4

4.0

5.0

4.5

Côte d’Ivoire

0.08

6.1

7.5

1.0

7.0

7.0

0.8

2.0

1.0

1.0

Uganda

0.07

5.3

6.7

1.0

6.0

5.5

2.9

4.5

5.5

6.0

Zambia

0.05

5.6

1.5

-4.5

3.5

4.0

9.1

15.0

11.5

10.0

Mozambique

0.03

3.7

2.2

1.0

5.0

4.0

2.8

3.5

4.0

4.0

Botswana

0.03

3.7

3.5

-6.5

4.0

3.5

2.8

2.0

2.5

3.0

Rwanda

0.02

7.2

9.4

-2.5

10.0

9.0

2.4

8.0

5.5

5.0

Mauritius

0.02

3.7

3.5

-10.0

6.0

4.5

0.4

2.5

3.0

3.5

Namibia

0.02

3.4

-1.4

-5.5

4.0

3.0

3.7

2.5

3.5

3.5

Sub-Saharan Africa

2.5

4.2

2.9

-4.1

4.7

4.1

8.4

9.5

8.8

8.1

Sources: Refinitiv, National Sources, Capital Economics. (1) % of GDP, 2019, PPP terms (IMF estimates).

Table 2: Central Bank Policy Rates

 

Policy Rate

Latest

(11th Sep.)

Last Change

Next Change

Forecasts

End

2020

End
2021

Nigeria

MPR

12.50

Down 100bp (May ’20)

Down 50bp (Nov. ’20)

12.00

11.50

South Africa

Repo Rate

3.50

Down 25bp (Jul ’20)

Down 25bp (Sep ’20)

3.00

3.00

Angola

BNA Rate

15.50

Down 25bp (May ’19)

Down 75bp (Q3 ’21)

15.50

14.00

Kenya

Central Bank Rate

7.00

Down 25bp (Apr ’20)

None on horizon

7.00

7.00

Ghana

Policy Rate

14.50

Down 150bp (Mar ‘20)

Down 100bp (Q2 ’21)

14.50

13.50

Uganda

Central Bank Rate

7.00

Down 100bp (Jun ’20)

None on horizon

7.00

7.00

Sources: National Sources, Capital Economics

Table 3: Key Market Forecasts

   

Forecasts

 

Forecasts

Currency

Latest
(11th Sep.)

End

2020

End

2021

Stock Market

Latest

(11th Sep.)

End

2020

End
2021

Nigeria

NGN (Official)

381

400

400

NGSE

25,544

25,500

30,000

NGN (Nafex)

386

450

450

 

South Africa

ZAR

16.8

16.0

16.5

JALSH

56,134

59,425

71,300

Angola

AOA

621

625

625

n/a

 

Kenya

KES

108

110

115

NSE 20

1,872

2,300

2,700

Ghana

GHS

5.7

6.0

6.1

GSECI

1,825

2,000

2,300

Uganda

UGX

3,695

3,900

4,000

UGSE

1,364

1,600

1,800

Sources: Refinitiv, Capital Economics


Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com