According to the latest reports from the Intesa Sanpaolo Studies and Research Department, in during 2016 the economy of Zambia recorded a growth rate in real terms estimated at 3,8%, up on the previous year's 2,9%. What if this result was mainly due to the extraction activity (+7,2%), for 2017 the economy is seen getting a boost from good rainfall after a couple of years of drought. In this context, Central Bank and the Government have recently raised their GDP growth estimates both for this year (to 4,3%) and for 2018 (to 5,1%).
From the peak of over 20% reached at the beginning of the year, inflation has slowed down significantly, with the trend rate falling to 6,6% last September. Trend inflation is expected to remain within the target range of 6%-8% both in the final months of 2017 and next year. In recent months, the reference rate has been cut repeatedly from 15,5% to 11% at the end of September, while that on overnight loans has dropped from 25% to 20%. The interbank rate, equal to 12,2%, is currently in the low end of the corridor formed by these two rates. In the last two years, the recovery of the copper price has favored a partial re-appreciation of the Zambian currency (the kwacha), with the ZMW/USD ratio rising to 9,7 at the beginning of October from over 12 at the end of 2015. In the short term, the probable new rate hikes on the dollar will weigh negatively on the currency, with a consequent reduction in the spread, while the prospects for Ml depend instead on the trend in the prices of raw materials, copper in particular.
According to preliminary data in 2016 the public deficit, estimated at 5,8% of GDP, was financed for over a third with international loans for the construction of public works and the rest with short-term bridging loans: in this regard, Zambia is in negotiations with the IMF to obtain an EFF (Extended Fund Facility) loan. The public debt ratio rose to 58% in 2016, from 51,4% in 2015: in this scenario the Zambia's balance of payments sees a commercial position heavily dependent on copper prices and an income account deficit due to the remuneration of substantial foreign capital invested in the country. Over the last decade, foreign direct investment has financed 30% of total investment, where currency sovereign debt is rated a highly speculative investment by all three major rating agencies (B for S&P and Fitch, B3 for Moody's).
If instead we turn our gaze to South Africa, it is increasingly difficult for the incumbent government to ignore calls for more radical reforms and a more rapid distribution of wealth: this situation weighs negatively on investor confidence and, consequently, on the prospects of the economy. During the first half of the year, the GDP growth trend accelerated to 1%: this rebound was mainly determined by the agricultural sector (+20,1%) which emerged from years of drought, and, to a lesser extent, from mining (4,4%). Despite the better-than-expected performance in the first part of the year, analysts remain cautious on growth prospects in the short and medium term: hence GDP growth is expected to be 0,7% this year and 1,1% next.
Last August, the annual rate of inflation slowed to 4,8%, from 6,7% in December 2016, peak of the last inflationary phase. There Central Bank expects inflation to reach a low point at 4,6% during the first quarter of 2018, gradually accelerating in the following months while remaining both in 2018 and 2019 within the target range of 3-6%. The reduction of inflationary pressures, combined with the relative stability of the exchange rate, allowed the Central Bank to cut the reference rate by 25bps (from 7% to 6,75%). During the year, the South African currency showed limited volatility and the exchange rate against the US dollar at the end of September, after an initial further strengthening, was substantially unchanged compared to the end of 2016 (around 13,50). Overvaluation of the real effective exchange rate, uncertainty about political developments, the risk of a new rating cut and expected dollar rate hikes point to a depreciation trend for the rand. The most recent consensus forecast calls for a 7% ZAR/USD depreciation within a year (to 14,5).
During the first half of 2017, the current deficit of the Balance of Payments was reduced to 3,7 billion dollars, thanks to the widening of the trade surplus. Over the same period, the financial account surplus fell to $2,3bn mainly as a result of divestments by mining companies to reduce risk. At the end of June, external debt amounted to 158 billion (49,7% of GDP): concerns about a radical change in economic policy that could alienate foreign investors led this year to new rating cuts on the sovereign debt of the South Africa. Since last April it has been considered a speculative investment by both Firtch and S&P BB+ while for Moody's it is still a risk-free investment, albeit at the low end of the scale and with a negative outlook.
