Fitch Ratings’ director of the sovereigns department, Veronica Kalema, says South Africa’s net exports will get a boost from the weaker rand, which will have a rebalancing effect on the economy.
Added to this will be the impact of the public investment programme.
In an interview on Monday, Kalema said the currency fallout has been more severe in South Africa than in other emerging markets and has changed South Africa’s macro outlook, but that the currency correction will rebalance the economy.
“The exogenous shock has resulted in a rebalance,” she said. “Your net exports, however, should get a boost from the weaker rand now.”
She added: “Each year I come back and the rand levels are lower. It was at R10 to the dollar, then everyone felt R8 was the right level, now people are happy with the current weakness. It is therefore difficult to say exactly what the correct level is for the rand.”
Fitch affirmed South Africa’s foreign-currency issuer default rating (IDR) at “BBB+” and local-currency IDR at “A”, both on stable outlooks on Tuesday last week.
Fitch said that in South Africa’s case, the currency fallout reflects a marked deterioration in the current-account deficit in the first quarter of this year. The key challenge is for South Africa to manage the current challenges posed by imbalances in the economy and exogenous shocks.
GDP
Kalema also said South Africa’s gross domestic product (GDP) should not fall as low the 3,7% reached in 2004. The growth forecast for South Africa is above 4% over the medium term.
She said that she does not see South African growth going as low as the pre-revision 2004 levels, even in the tough times of rate increases, as long as the country does not choke growth.
“In 2004 you had growth of just 3,7% and it was revised up significantly to 4,5%. I don’t think you’ll fall that low, or go below the 3,7%,” she stated.
Kalema said Fitch feels that despite downward adjustments to growth this year, South Africa’s growth performance will continue to be boosted by strong public investment and rising net exports and is forecast to be above 4% over the medium term.
Statistics South Africa will release the latest GDP growth figures on Tuesday at 11.30am.
A survey by I-Net Bridge has found that the real growth rate of the South African economy is expected to have increased to 4,3% on a quarter-on-quarter seasonally adjusted annualised basis during the second quarter of 2006, from 4,2% in the first quarter, according to a consensus of 11 economists surveyed.
On a year-on-year basis, however, the consensus dips to 4% from a previous annual GDP growth rate of 4,1%. — I-Net Bridge