South Africa Growth Forecast Cut

Fitch Ratings subsidiary BMI Research on Friday joined the World Bank in revising South Africa’s economic growth for this year to 0.7% from its previous forecast of 1%, warning that pursuing a nuclear program would put significant strain on the sluggish economy.

BMI said although it expected the government to remain committed to expanding the country’s nuclear capacity, no new nuclear capacity would come online over its 10-year forecast period, IOL reported.

“The significantly higher costs associated with nuclear technology compared to coal-fired or renewable electricity generation mean that the financial headwinds facing Eskom, and the government’s weakening ability to provide support to the company, will place a significant financial strain on the country if the nuclear power plants are pursued,” the company said.

The government said in February it expected the economy to grow 1.3% this year, 2% next year and 2.2% in 2019.

The country is in a technical recession after the economy contracted 0.7% in the first quarter of this year, following a contraction of 0.3% in the fourth quarter of 2016. BMI’s revision of the country’s growth prospects are in line with the dominant sentiment among economists. Earlier this month, the World Bank slashed the country’s economic growth outlook for this year to 0.6%, down 0.5 percentage points from its January forecast of 1.1%.

First National Bank has also toned down its optimism about growth prospects, saying growth would settle at 0.6% this year, down from its previous prediction of 0.7%.

Only the International Monetary Fund expects growth to average 1%, up from its previous forecast of 0.8%, based on anticipated higher agricultural production this year. BMI said it expected the government’s nuclear agenda to face headwinds over the coming years because of legal obstacles, public opposition, financial constraints at Eskom and the construction delays typically associated with nuclear power plants.

“Even if South Africa does secure contracts for new nuclear capacity over the coming year, we expect the development of projects to be hindered by the inhibitive costs of the technology, delays to construction and cost overruns, which are commonplace with nuclear projects across the world.”