Weaker commodity prices and electricity supply shortages are the biggest risks to South Africa's 2016 economic performance, according to a Reuters poll taken in the week before the finance minister was sacked. President Jacob Zuma removed Nhlanhla Nene from his position on Wednesday, a dismissal that has rattled markets and followed Fitch downgrading the country's credit rating to just one notch above junk.
South Africa has already been hit by a slowdown in China, the world's No 2 economy, driving economists to regularly trim their forecasts this year. Indeed, the poll showed forecasts being shaved again and GDP is now expected to grow 1.4 percent this year and 1.6 percent next, 0.1 percentage points lower than last month's forecasts.
"Business and consumer confidence are waning, corporate profitability is under pressure and the outlook for growth in China, South Africa's largest trading partner, is worsening," BNP Paribas economist Jeffrey Schultz said. "All this has compounded the downward pressure emanating from the slump in global commodity prices as the dollar continues to rally, so we have decided to reduce, once again, our already sombre GDP growth estimates for 2016 and 2017."
Schultz is among the most bearish economists for next year's performance, expecting 0.9 percent growth. Other factors listed as risks include labour disruptions in major sectors such as gold mining and power, as well as a drought that continues to threaten the agricultural industry. However, the overarching global theme has been the slump in commodity prices which sent the rand to record lows against major currencies like the pound and the dollar on Tuesday, a sign of how tough it has been for exporters.
"Low commodity prices associated with tepid global growth is set to contain domestic exports and thereby weaken South Africa's growth," Eskom Treasury economist Mandla Maleka said. Maleka said a US interest rate lift-off by the Federal Reserve - widely expected to come next week - is set to further weaken emerging market currencies. Economists were wary of a weaker rand stoking inflation and leading the central bank to lift interest rates despite the weaker growth trajectory.
Having already added 25 basis points in July and November, the South African Reserve Bank is expected to add the same amount in the first quarter, taking the benchmark rate to 6.50 percent. It is seen ending 2016 at 6.75 percent. "Q1 is hard to call, they can go big with a 50 basis points in January if there is a big shock post FOMC (Fed)," Nomura emerging markets analyst Peter Attard Montalto said. "But more likely a more muted and temporary market reaction will mean only a smaller 25 basis points is needed in January or maybe March," he said.
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