Western Cape drought dampens GDP

Standard Bank has warned that the drought in the Western Cape has already hit the country’s growth rate.

An economic bulletin by the bank’s Penny Byrne notes that “the Western Cape (WC) has experienced below-average rainfall for the past three seasons, which has left agriculture reeling and dam levels dangerously low. We estimate that WC GDP growth could slow from an estimated 1.0% in 2016 to 0.1% in 2017 and -0.2% in 2018, in our base case.”

She said: “In our bear (most negative) case, we estimate that WC GDP contracts -1.0% in 2018.”

She suggested that this would also drag down national growth.

“The Western Cape accounts for 13.3% of national GDP, and this would reduce SA’s GDP in 2017 from our previous estimate of 0.6% to 0.5% and in 2018 from 1.1% to between 0.8% and 0.9%.

“The drought is also likely to negatively affect the nominal trade balance as well as unemployment. Reduced agricultural exports and increased import of wheat could see the trade balance reduce by as much as R19bn.

“Over the course of the first three quarters of 2017, the WC agriculture sector lost 91,000 jobs in total, almost half of the formal agriculture sector’s workforce.”

Standard Bank warned that lower growth could imcrease the danger of further ratings downgrades.

“The lower growth projection is likely to be read as negative by ratings agencies. S&P and Moody’s will meet on 24 November to review South Africa’s rating. A downgrade (or credit watch) would negatively affect both the rand and bond markets,” it concluded.

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