South Africa’s economic growth is expected to speed up from 2.5% last year to 2.8% this year and further to 4.3% in 2014 on the back of a weaker rand and a pick-up in world trade, which should stimulate exports, the Organisation for Economic Cooperation and Development (OECD) said in its latest Economic Outlook.
In 2012, South Africa’s GDP growth remained below potential for the sixth year in a row, mainly due to weak export growth, the report said. Production and exports remained subdued at the beginning of 2013 due to capacity constraints in the electricity sector.
The country’s economy expanded by 0.9% q/q and by 1.9% y/y in Q1 2013, at the slowest pace of growth since the country rebounded from the 2009 recession, due to a sharp, 7.9% q/q contraction of the manufacturing sector. But the expected installation of new electricity generation facilities should support a pick-up in economic growth. The anticipated growth in exports will also help narrow the current account deficit from a projected 6.9% of GDP for 2013 to 6.6% in 2014.
The OECD projected South Africa’s headline inflation to rise from 5.6% last year to 6.5% in 2013 and then fall back to 5% in 2014. It recommended that the South African Reserve Bank (SARB) should explore room for monetary policy easing, as the slack in the economy and fiscal tightening should contain inflationary pressures, while guarding against the possibility of the recent spike in inflation feeding into inflation expectations. Last week SARB kept its key repo rate unchanged at 5%, saying the scope for further monetary easing was constrained by a weakening rand and upside risks to inflation despite sluggish economy.
The OECD expects South Africa’s fiscal deficit to shrink from 5.6% in 2012 to 5.2% this year and further to 4.4% in 2014. It said that the gradual fiscal consolidation, which focuses on restraining spending, should be accelerated, although the automatic stabilisers should be allowed to support the economy if growth turns out lower than expected.
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