FNB is the first South African bank to revise down its economic growth forecast for 2017, predicting that it will deteriorate to 0.7%.
The IMF last week forecast SA’s growth at 0.8%. The Treasury forecasts growth for 2017 at 1.3%, while the Reserve Bank places it at 1.2%.
After the recent knock of two credit rating downgrades in one week, economists have warned that SA’s green shoots of economic growth might be at risk, but many also said it was a "wait-and-see game".
"Overall, SA’s economy is still expected to grow ahead of last year’s 0.3% GDP in 2017, but recent political noise and the subsequent credit ratings downgrade has forced us to downwardly revise our expectations of 1.1% this year, to just 0.7%," FNB economist Mamello Matikinca said.
Last week, in its World Economic Outlook report, the IMF warned that SA needed to institute urgent reforms to its product and labour markets to allow the entry of new companies and stimulate job creation. Without such reforms, confidence would decline further, it said.
The fund said commodity exporters such as SA would face difficulties despite global economic growth and a commodity uptick.
FNB senior economist Jason Muscat said the reason for the bank’s revision was not that the fundamentals had deteriorated. "What we expect is a shock to business and consumer confidence," he said.
He said that a decline in business confidence would lower business and consumer spending. "We were waiting to see and then Fitch downgraded us. We fully expect that Moody’s will downgrade us but they may keep foreign and local currency the same or downgrade it to one notch above junk."
Despite a lower growth forecast, Muscat does not expect foreign investors to pull out of SA soon. "Investors don’t want to miss the boat like they did in Brazil. Investors pulled their investments out of Brazil and subsequently missed the upturn," he said.
The biggest concern was that there would be a deviation from the fiscal consolidation presented in the 2017 budget by former finance minister Pravin Gordhan in February, he said.
"Right now, [Finance Minister Malusi Gigaba] is saying all the right things," Muscat said.
Over the past two weeks, Gigaba told local and foreign investors that he was committed to the Treasury’s previous policies and programmes and that a change to fiscal consolidation was "unlikely".
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