Cape Town – There’s a 50% chance of President Jacob Zuma reshuffling his cabinet. This is according to multinational bank BNP Paribas’ latest Global Outlook report.
Political analysts and economists have warned that Zuma could remove his detractors from their cabinet positions as calls for him to step down are increasing.
“Politics prevails in South Africa, as blows to President Jacob Zuma’s credibility have led markets to believe (incorrectly, so far) that his days are numbered,” BNP Paribas said. “While the rand initially benefited from this view, the US election has set the currency back again.”
South Africa’s growth outlook remains poor, according to the report, and third quarter GDP is likely to have slowed on the back of lower industrial production and exports.
In addition, there’s increased risk that South Africa will be downgraded to junk status by mid-2017 in the absence of the necessary economic reform.
Standard & Poor’s is expected to review South Africa’s credit rating on Friday.
BNP Paribas said core inflation in South Africa is likely to “soften” as food prices slide sharply from the middle of next year, which should give the South African Reserve Bank (Sarb) room to ease monetary policy.
“We are in the minority, but we believe the Sarb could cut interest rates by 25 basis points in both the third and fourth quarters of 2017,” the report said.
If inflation expectations, however, fail to deliver – headline inflation in October at 6.4% was higher than expected – the Sarb will have less scope to ease interest rates.
‘US Fed hike imminent’
The report noted that Donald Trump’s presidency could have far-reaching global effects and the next two years are unlikely to be boring for central banks, economies and markets.
The multinational bank expects the US Federal Reserve to not only hike interest rates as early as December this year, but also twice in 2017 and four times in 2018.
“This should push the 10-year US Treasury yield to 3% by end-2017 and 3.5% by end-2018.”
In addition, BNP Paribas has adjusted its growth forecasts for the US upwards close to 3% in 2018.
Japan, Europe and China
BNP Paribas is of the view that a weaker demand for European exports from emerging markets would offset the positive effect of stronger imports from the US.
Japan, on the other hand could grow more strongly in 2017 than previously expected.
“China’s economic performance seems to have turned a corner this year, largely thanks to a huge public-sector stimulus,” the report said. “We expect policy to continue to be expansionary.”
Emerging markets that are likely to feel “the most pain” BNP Paribas said, include Turkey, South Africa and Mexico.
“We see Russia and Brazil as the least vulnerable emerging market countries.”