StanChart Looks Past GDP Shock for Green Shoots in South Africa

(Bloomberg) -- Standard Chartered Bank hasn’t given up on the rand or South Africa yet, even after the worst quarterly economic contraction in nine years.

One reason for optimism is growth in household wealth and spending, said Razia Khan, the London-based lender’s chief economist for Africa and the Middle East.

“We know that households have used the period of low interest rates to deleverage considerably,” Khan said at a client presentation in Johannesburg Wednesday. “They are now in better shape to be able to contribute more strongly to growth. Demand for durable goods has continued to rise.”

StanChart Looks Past GDP Shock for Green Shoots in South Africa

The lender sees the rand strengthening to 11.80 per dollar by the end of the year, from around 12.76 on Wednesday, and the economy expanding by 2.2 percent in 2018.

“The reason why we are a little bit more upbeat on South African growth than many of our peers is that when we look closely at the data, we see those green shoots of recovery,” Khan said.

While rising U.S. rates were causing volatility in emerging-markets currencies, Treasury yields remain in a long-term downward trend, she said. The rand hasn’t broken out of its longer-term trading range and is well-placed to regain its strengthening trajectory.

South Africa’s currency soared in the first quarter as Cyril Ramaphosa maneuvered to replace Jacob Zuma as president, boosting business confidence after four years of economic growth below 2 percent. But recent data showed an economy still struggling to take off, with output contracting 2.2 percent in the first quarter of the year compared with the previous three months.

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