Growth cycles are sometimes quite contrarian. Several rating downgrades, a trend increase in debt levels and political uncertainty triggered many downward revisions of growth forecasts (the latest from the IMF, to +0.9% in 2018). However, we see growth accelerating in South Africa, with external conditions being supportive. Metal prices increased (+17% y/y) and the ZAR appreciated to its best level since May 2015 (below 12 ZAR per USD). Even the 10-year sovereign bond rate is back to the levels observed before the last rating downgrade (8.7% on 24 January) driven by the election of C. Ramaphosa to head the ANC and the possibility that President Zuma’s term may end soon. Economic data improved as well. Core inflation fell to a six-year low of 4.2% y/y in December and retail sales growth rebounded to +8.2% y/y in January. EH expects GDP growth to accelerate from +0.8% in 2017 to +1.4% in 2018. However, public debt at 53% of GDP poses a downside risk, especially debt related to SOEs.
