Analyses & Studies
S&P Global Ratings Forecasts Modest Growth and Credit Challenges for South Africa
In a recent report, S&P Global Ratings anticipates a sluggish economic path for South Africa, with GDP growth estimated to be less than 1.0% in 2023 and a modest 1.5% in 2024.
The global ratings agency points to tight credit conditions in 2024, projecting inflation around 5%, nearing the upper limit of the South African Reserve Bank's target range of 3% - 6%.
According to S&P, private sector credit growth is expected to be limited, with a modest estimate of 5%. However, the report notes a potential silver lining as banks might extend credit to the renewable energy sector to address electricity shortages.
Despite the challenges, S&P forecasts stability in the private sector credit to GDP at approximately 70%. However, households' disposable income is expected to face pressure due to high-interest rates and elevated food prices.
The report suggests that the banking sector might encounter a slightly higher credit loss ratio of 1.4% in 2024, accompanied by nonperforming loans persisting above 4% of total loans.
S&P remains optimistic about the sector's ability to maintain strong risk-adjusted returns, projecting an average of 15%-16%. This resilience is supported by net interest margins and transactional revenue, contributing to robust internal capital generation.
However, the sovereign-bank connection introduces challenges, limiting the availability of high-quality liquid assets. Banks are expected to approach sovereign risk cautiously in this demanding economic environment.
As South Africa grapples with structural issues and infrastructure gaps, hindering its short and medium-term growth, the full S&P Global Ratings report provides a comprehensive insight into the economic landscape.
To read more, click here: https://www.spglobal.com/_assets/documents/ratings/research/101592098.pdf
