The honeymoon period is still benefiting the new government. The willingness to reduce the fiscal deficit and stabilize the debt levels has convinced international rating agencies. Moody’s recently moved the outlook of its sovereign rating for South Africa from negative to stable, with important positive consequences for corporate ratings. Inflation has again surprised on the downside at +4% y/y in February, and should continue to ease as a result of the ZAR appreciation. We forecast the ZAR to end 2018 at 11.5 per USD (on average, +11% higher than its 2017 average). This will give a welcomed leeway to the Central Bank to reignite its easing cycle. We expect the policy rate to be cut by -100bp this year, sending it to 5.75% by year-end. However, in the long run the more difficult task will be to reform public finances and in particular SOEs. The deteriorating situation of public corporates took already its toll on the overall corporate sector situation in 2017. After experiencing their trough in September 2017, insolvencies have begun to increase (+5% from September to January 2018).
