South Africa: Honeymoon

5 min

South African growth data continued to improve in Q4 2017, coming in at +3.2% q/q annualized, after already two quarters of above trend growth (+2.9% in Q2 and +2.3% in Q3). The improvement of agricultural production (+23.5% in 2017) was a key trigger for the recovery. Agriculture is not a strong part of the economy, but the output normalization contributed to the observed disinflation. Low inflation was the main trigger for the overall growth acceleration. As a result, we lower our inflation forecast for 2018 to +4% on average. Considering this still benign inflation environment and the positive surprise on growth, we revise upward our 2018 growth forecast from +1.4% to +2%, the fastest rate since 2013 (+2.5%). This more favorable outlook should also make the fiscal balance adjustment easier, facilitating the implementation of reforms and driving fiscal revenues higher. As a result, we revise our fiscal balance 2018 forecast from -4.5% to -4% of GDP.