South African economy faces significant headwinds, economy likely to stagnate in 2016

Currently, significant headwinds are being faced by the South African economy. Last year the economic growth came in at just 1.3 percent, but the outlook for this year has deteriorated further. The GDP in the first quarter of 2016 decreased 0.3 percent in sequential terms. In the past four quarters, South Africa’s real GDP has dropped 0.5 percent in total.

The economic output stagnated in the first half of 2016, following a mere rise of 0.2 percent per quarter in the second half of 2015. The South African economy is facing a recession. If the real economy picks up immediately, a positive pace of growth is likely for the whole of 2016, noted Commerzbank in a research report.

The economy is expected to stagnate in 2016. Fixed capital formation and mining were weak in the first quarter due to low commodity prices. Investor confidence is being weighed on because of uncertainty, which is a result of political turmoil. After commodity prices recovered slightly recently, a solution of the internal political situation would be required for a solid economic growth in 2017. The economy is likley to grow 1.5 percent next year, said Commerzbank.

Because of the general issues facing the emerging market nations and declining growth amongst key trade partners, mainly China, the risk on the downside for the economic outlook continues to be high. Furthermore, low commodity prices have resulted in a decline in export revenue. South Africa finance minister Pravin Gordhan’s aim to lower the budget deficit is become more challenging. The possibility has increased for the international rating agencies to lower the nation’s sovereign rating.