Despite recent political uncertainty, there is currently a sharply improved short-term cyclical outlook for South Africa compared to earlier in the year, according to Johann Els, OMIG Senior Economist.

“The rand is looking more stable and stagflation turned out to be milder than earlier anticipated, given better recent growth data and milder inflation,” he said at the Old Mutual Investment Group (OMIG) quarterly media briefing.

Els said that a low US interest rate upcycle, a stable to weaker dollar, an improved Chinese economy and stable commodity prices are all contributing factors to the stabilising rand. 

“In addition, an improved Emerging Markets environment, plus SA’s smaller current account deficit, could also help to contribute to a better rand over the next year to 18 months,” he explained.

“This is assuming a potential ratings downgrade has already been priced in. Obviously, the avoidance of a downgrade and political/policy stability could enhance this scenario,” he said.

Regarding inflation, the outlook has improved recently with actual price increases sharply lower than earlier in the year. 

“The peak in the current cycle was the 7% recorded in February this year, and despite a slight drift higher from July’s 6% to about 6.6%/6.7% by December, it is likely to be sharply lower in 2017 and could be below 5% by May 2017,” Els said.

Growth is looking somewhat better outlook, according to Els, and the risk of an imminent recession is reducing after recent strong Quarter two numbers. 

“Quarter three is likely to be weaker again, with some payback likely. But if the average GDP growth in the second half of the year is roughly the same as the first half, the 2016 growth will be about 0.5%,” he said. 

Els added that, unfortunately, medium to longer term growth prospects are not promising without meaningful economic reform. 

“However, we expect growth to rise further to about 1.3% in 2017, with possible surprise upside growth if Emerging Markets’ remain flavour of the day and confidence improves,” he said.

“Still slow economic growth, combined with a better inflation outlook – including a sharp fall in inflation during the first half of next year – should not only assist the Reserve Bank from hiking rates further, but will likely lead them to cut in rates during the second half of 2017,” he added.