South Africa’s economic growth has been disappointing and the continuing challenge of constrained power supply means that the country can continue to expect subdued growth until this is resolved, said Nedbank Capital economist Nicky Weimar at Nedbank’s fourth yearly 2015 Nedgroup Investments Treasurers’ Conference, held in Johannesburg, Gauteng, earlier this month.

She noted that the International Monetary Fund and the South African Reserve Bank had warned that the country’s potential economic growth was limited to between 2% and 2.5%, which was largely attributed to the limited power-generating capacity.

“Growth of much over 2% will only be possible once the power constraint has been lifted, labour relations improve and some of the many policy, legislative and governing uncertainties have been resolved sufficiently to boost business and consumer confidence,” said Weimar.

She added that the country’s economy was expected to increase by an estimated 2.2% in 2015, before slowing again to about 2.1% in 2016.

“Challenges such as the spate of xenophobic attacks, higher personal income and indirect taxes, expectations of higher interest rates and drought in key field-crop-producing regions have all combined to weigh on domestic confidence and overall activity, limiting the upside for the entire economy.”

She added that the rand, the value of which had dropped in comparison to other major currencies this year, was expected to weaken even further.

“Rand movement will remain volatile, with the timing and pace of US monetary policy normalisation likely to be the key driver in the months ahead,” Weimar pointed out.

She cited that a weaker currency would normally encourage exports and dampen imports, thereby helping to narrow the current account deficit; however, it might be difficult for local exporters to fully exploit this competitive edge amid the current electricity supply crisis.

As a result, Weimar believed that the impact of a weaker rand was more likely to be felt in higher inflation, which would lead to higher interest rates.

This would subsequently hurt consumer spending, as households struggled to cope with debt burdens that remained high and slowing income growth, she added.

However, she pointed out that, on a positive note, improvement was expected over the next two quarters, helped mainly by last year’s low base, steady household spending and the increase in manufacturing production as global growth improved and the rand weakened later this year.

“However, considerable downside risks remain with load-shedding, possible setbacks in China, persistently low international commodity prices and renewed waves of disruptive industrial action,” concluded Weimar.