Best and worst case scenarios for where South Africa is heading right now – and how likely they are to happen


Investec has released its updated economic scenarios for South Africa – including ‘extreme’ upside and downside scenarios for which the rand/dollar exchange rate and repo rate could land if certain conditions are met. fulfilled.

The forecasts, which were released in a research note Monday, June 20, take into account several factors, including the war in Ukraine, expropriation without compensation and the global oil crisis.

Extreme upside event – 1% chance to occur

In this scenario, the impact of Covid-19 locally and globally is quickly resolved, with South Africa experiencing rapid annual economic growth of 3-5% and then 5-7%.

This is complemented by good governance and growth-enhancing reforms, strengthening property rights and stopping any further expropriation without compensation or attempted nationalization.

This is being boosted by high business confidence and growth in fixed investment, substantial foreign direct investment and solid fiscal consolidation as the government gets debt under control.

Inflation will be kept under control thanks to the extreme strength of the rand, rapid capacity expansion and very favorable weather conditions.

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This scenario is characterized by strong global growth, a continued commodity boom, stabilizing credit ratings and consequent credit upgrades.

Positive case – 4% chance of occurring

In this scenario, South Africa sees a rapid rebound from the Covid pandemic, alongside rising confidence and investment levels, while existing structural issues are eroded. Similarly, global risk is dissipating and demand is rapidly returning to trend growth.

Land expropriation policies are largely abandoned or conducted in such a way as to have no impact on the economy, while nationalization takes place.

South Africa is experiencing lower than expected inflation due to good weather, the strong rand, government interventions and increased privatization.

This scenario is characterized by the absence of further credit rating downgrades, signs of possible improvements as debt projections drop significantly.

Base case – 50% chance of this happening

In this scenario, South Africa sees a recovery from the sharp global economic downturn by 2024 in real terms. Sufficient global and domestic monetary and other policy supports for growth and financial markets are occurring, and risk sentiment is shifting from neutral to positive.

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Expropriation of private sector assets is limited and has no negative impact on the economy or market sentiment.

Civil and political unrest subsides, while inflation is influenced by the normal course of weather. The country is experiencing a modest transition to renewable energy and a slow move away from fossil fuels, while climate change measures are being introduced modestly.

In this scenario, South Africa retains a BB credit rating in the event of debt stabilization.

Mild inconvenience event – 39% chance of occurring

In this scenario, the international environment is the same as the base case, but South Africa fails to control its debt and a recession occurs.

Uncompensated expropriation of private property is very limited, resulting in some negativity that ripples through the wider economy.

Business confidence remains depressed, the rand continues to weaken, inflation continues to rise, major load shedding is occurring and foreign investment continues to be weak. However, substantial fiscal consolidation eventually occurs.

This scenario is rated by South Africa which does not see its debt projections stabilize and falls into a single B rating from all three credit rating agencies for local and foreign currency.

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Severe Inconvenience Event – 6% chance to occur

In this scenario, South Africa and the rest of the world are in the grip of a long global recession and a financial crisis, which leads to insufficient monetary policies and other support for growth.

South Africa enters an economic depression and experiences severe rand weakness and very high inflation. The economy is also forced to deal with a wider level of property expropriation and attempts at nationalization.

The government is forced to borrow from larger and larger sources as it sinks deeper into the debt trap. This eventually leads to widespread civil unrest and strikes.

This scenario is graded by South Africa being rated with a single B from all three credit agencies, with further downgrades in the CCC rating and possibly default.

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