The Bank of America (Bofa) has downgraded its economic growth forecast for South Africa and has flagged tensions in the government of national unity as posing a further risk after the budget was adopted on Wednesday without the support of key GNU partners, the DA and FF+.
Bofa hosted an investment conference in Sun City last week attended by local and offshore investors, coupled with field trips in Johannesburg and Cape Town.
Tatonga Rusike, the bank's chief Africa economist, told journalists it had downgraded its 2025 growth forecast for South Africa from 1.6% to 1.4% for this year to reflect delays in domestic reforms and rising economic uncertainty coupled with slowing growth.
He said the slower growth and tensions in the GNU could possibly remove upside potential for sovereign ratings and the bank would likely taper its ratings expectations.
We have to watch in the coming days or weeks if the ANC and DA are able to come to some form of agreement to serve the GNU in its current format. If they are not able to do so, perhaps you have scenarios where the DA could exit and you find the GNU still remaining but co-opting new partners, which could mean a narrow majority and possible political tensions
— Tatonga Rusike, Bank of America's chief Africa economist
“We have been saying ratings are likely to be on the upside. The change in view could be tapering expectations on potential upgrades, but they are probably likely to stay where we are given the risks we are now seeing based on GDP growth and perhaps a reconfiguration of the GNU. That could slow investments and perhaps lead to lower growth, that is the concern,” he said.
It was possible that S&P Global Ratings could pull back on the current positive outlook, while other ratings agencies could place South Africa on stable outlooks.
Tensions in the GNU are a risk, Rasuke said, pointing to the budget being passed without the support of the DA and FF+, which could lead to their exit from the coalition.
“Time will tell, given that the budget was only passed last night; there could be more movements as far as the GNU is concerned. I think in the meantime market reaction to GNU tensions is negative and does not bode well for market prices, at least for South Africa. Those are risks to watch.
“We have to watch in the coming days or weeks if the ANC and DA are able to come to some form of agreement to serve the GNU in its current format. If they are not able to do so perhaps you have scenarios where the DA could exit and you find the GNU still remaining but co-opting new partners, which could mean a narrow majority and possible political tensions.”
Bofa strategist John Morris said the bond market had been quick to react and South Africa had seen R70bn of bond inflows since the formation of the GNU.
“Even in that week where there was the delay in the budget, there were inflows from foreign investors because the yields were still positive and the rand was steady. Now you have a worst scenario on the tariffs side globally, the investors are trying to assess what this means. The announcements are worse than what investors thought, and that is putting pressure on global equities, including South Africa. On top of that you have question marks around the GNU.”
Morris said the overall sentiment from corporate investors was positive and this was mainly attributable to the earnings growth outlook.
“The vast majority of companies are talking about strong earnings growth, with many even alluding to double digit growth. Importantly, none of the companies are banking on materially higher GDP growth to get there; rather the growth has been driven more by innovation, focused investment in online and fintech, which are fast-growing categories, and self-help cost-related measures.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.