Country Economic Forecasts > South Africa

Q2 GDP fell 0.3%, resulting in annual growth slowingto just 1.6%. The main negative contributions came from manufacturing, miningand agriculture. Apart from politicalproblems and government inefficiencies, the electricity supply deficit and fallinginternational commodity prices are the two biggest obstacles to the economy. Wehave therefore lowered our forecast for GDP growth to 1.5% in 2015 (from 2.1% previously)and 1.9% in 2016 (from 2.3%). Falling commodity prices are damaging the miningand manufacturing sectors, with squeezed profit margins leading todisinvestment, mothballing of mines and job losses. Meanwhile, along with many otheremerging market currencies, the rand has fallen significantly against the US$, droppingto close to ZAR13.6/US$ for the first time ever, as concerns mount about theextent of the slowdown in China and ahead of the expected US rate rise. Headlineinflation is creeping back to the limit of what the South African Reserve Bank(SARB) considers comfortable, at 5% in July. We expect a further deteriorationin the inflation outlook and a US rate rise in December to prompt the SARB to raiserates by 25bp in January next year, although easing core inflation may give someroom for manoeuvre.