South Africa: Uncomfortably numb

Country Report

South African GDP per capita stalled for almost three years. Expected growth for 2017 (+1%) and 2018 (+1.5%) will not be enough to deliver fresh per capita income growth. It created some discontent and contributed to private confidence (business as well as consumer one) slump. The trigger of this slow growth momentum was the decision of Chinese authorities to let growth slow in 2011. It implied less demand for metals, a fall in metal prices (key South African export) and a related depreciation of the rand exchange rate (-46% from 2011 to date).

Recent political evolutions didn’t show any sign of solutions in order to break this stagnation. Public debt is growing but from a low starting point. It means that financing is not a big issue, so the government has no incentives to rebalance its public balance. Such a model, with a level of public spending somewhat high for the region (about 40% of GDP) does not give the right incentives to the private sector. National savings are only 16% of GDP, not enough to finance investment and fix the bottlenecks inhibiting South African growth (particularly regular power shortages). Policy slippage is likely until the next Presidential election in 2019.