Africa Business South Africa Southern Africa World 

South Africa’s recovery is on its way but downside risks remain

– –

Following a robust recovery in 2021 after the Covid-19 pandemic (+4.9 percent), the GDP of South Africa is anticipated to continue expanding over the next two years, but at a slower pace.

Analysts are expecting growth to increase by 1.8 percent in 2022, and by 1.3 percent in 2023 according to the latest OECD forecasts.

But the South African economy is facing increased risks in the upcoming months depending on how long “load shedding” (shutting down electric power to balance supply and demand) is set to persist – not to mention that the second half of 2022 will also see South Africa enter a deteriorating global economic and financial situation.

This uncertainty will likely increase volatility in the local financial markets, which active traders can take advantage of through derivative products such as CFD or Contracts For Difference.

With CFD trading it is possible to trade financial assets without owning them and to potentially benefit from rising and falling markets over the short term.

– –

In addition, you can use margin trading and leverage when using a CFD, which means that you can start with relatively small capital.

Is South Africa going to face a contraction during the second quarter of 2022?

The short answer is, unfortunately, yes. A contraction is possible, and some economists are even worried that despite the GDP predictions, recent events could actually lead to a recession as well if things don’t improve.

Like many of the major economies around the world, South Africa is battling rapidly increasing levels of inflation, unemployment, as well as the rising cost of living.

Moreover, the country is dealing with the ongoing fallout from the devastating flood damage in the KZN province in April this year.

– –

The country is also facing a weakening currency, as the Rand has also just traded at its lowest value against the USD since September 2020, closing at 17.1725 at the time of writing (Tuesday 12th July).

In addition to all of the above factors, the load shedding issue is becoming a growing concern. Since 2007 its state-owned provider of electricity, Eskom, has implemented the measure to cover for its inadequate supply and lack of new power stations.

They’re apparently at their worst point now though, at an almost unprecedented ‘stage 6,’ with some scheduled blackouts lasting up to 9 hours. This is a huge daily disruption, and it’s costing the South African economy roughly 40 million dollars a day, according to economists.

With the disruptions to business across the country, there is a risk of a drop in South Africa’s credit ratings. Although the country has managed to dodge a drop so far this year, they’re already at their lowest point with the three major rating agencies since first obtaining credit ratings back in 1994.

Moody’s recently rated the country two levels below investment grade, and Fitch three steps below.

Some in the industry are possibly more optimistic than others though, with Standard & Poor’s (S&P) revising its rating from stable to positive in May.

Their director of corporate ratings for South Africa, Omega Collocott, told an interviewer at Bloomberg News that “a positive outlook from S&P for a below-investment-grade like South Africa means there’s a one-third chance of a higher rating move in the next 12 months.”

Sourced from Africa Feeds

Related posts