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Investing.com -- Bank of America analysts maintain a positive outlook for South Africa’s economic growth, projecting an improving trend that could reach 1.6% this year. This follows a year where real GDP growth slightly underperformed at 0.6%, despite improvements in electricity supply and the formation of a new Government of National Unity in June 2024.
Looking ahead to 2025, BofA anticipates a better economic climate driven by increased domestic investment and consumption, although they caution that risks are skewed to the downside. They note that high-frequency data has yet to firmly indicate an upward trajectory and that industrial production is showing mixed trends, suggesting that more time is needed for growth to stabilize at higher levels.
On the inflation front, BofA observes that domestic inflation in South Africa remains benign, which keeps the door open for a potential rate cut by the South African Reserve Bank (SARB). The central bank held the policy rate steady at 7.5% on March 20, citing global risk concerns.
However, inflation is expected to stay below the 4.5% target at least until the third quarter of 2025, compared to previous expectations of reaching this level by mid-year. BofA forecasts headline CPI to average 3.9% in 2025 and 4.6% in 2026.
BofA also revised its forecast for Brent crude oil prices, lowering them to $70 per barrel from a previous estimate of $75 for 2025 and setting a price of $73 for 2026. Additionally, the National Energy Regulator of South Africa (Nersa) has announced a tariff increase of 12.7%, which is less than BofA’s earlier estimate of nearly 20%.
Regarding the South African rand (ZAR), BofA suggests that the currency is undervalued and could appreciate if the U.S. dollar weakens. They believe that once market uncertainties have dissipated, the SARB may still opt for a rate cut of 25 basis points, potentially bringing the policy rate down to a terminal rate of 7.25%.
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