Tawanda Karombo

Resilient South African corporates and investors have adopted an overall positive sentiment on the economy on the back of expected strong earnings despite risks emanating from fiscal pressures, tensions with the United States and government of national unity (GNU) disagreements.

Bank of America economists and analysts said on Thursday that South African corporates are optimistic of a positive earnings outlook.

Michael Jacks, head of South Africa research at Bank of America Merill Lynch, said that South African firms have exhibited resilience “despite a host of headwinds” such as logistics logjams they have had to deal with over the past few years.

“However, the overall sentiment, we'd say, from corporates was posititive… that's mainly attributable to the earnings growth outlook,” said Jacks during a virtual briefing with media.

“The vast majority of SA companies are speaking about strong earnings growth in the coming year, with many, even alluding to top digit growth.”

Nonetheless, this rosy outlook was not premised on a solid outlook of GDP growth for South Africa. The robust growth outlook for corporate SA earnings was being driven by “innovations” and “focused investments” in areas such as technology and Artificial Intelligence.

Still, Bank of America is now “more bullish on precious metals, telcos, consumer and financials” sectors.

Retailers in SA who have been witnessing a sustained shift to value and budget offerings were more inclined to post mid single digits in like for like growth. There was likely to be deflation in certain categories such as staples, such as maize and rice.

Although SA corporates have exhibited optimism, said Jacks, banks, bankers and chief financial officers (CFOs) were still cautious about the economy.

“Banks and CFOs are generally more cautious on the economy than most. Companies are (also) still hesitant to invest due to global uncertainty, global reforms and lack of consumer growth (although) they are seeing investment in energy infrastructure,” he said.

But for Tatonga Rusike, Sub-Saharan Africa economist for Bank of America, said South Africa still has to shrug off fiscal risks, tensions within the GNU and deal with US relations that were increasingly becoming strained.

These risks were militating against GDP growth for South Africa. Bank of America has had to downgrade its 2025 GDP growth forecast for South Africa from 1.6% previously to around 1.4%.

This was reflective of the delays to domestic reforms, as well as rising global uncertainty and slowing global growth.

“We have also kept our medium term forecasts on growth unchanged which means we still expect that growth would likely stay above 1.5% over the medium term. We have GNU risks that are now increasing, starting with the budget reading, and then now with the budget being passed, without the support of the other GNU partners,” said Rusike.

Amid fears and concerns that the GNU could implode, Rusike said there was likely to be a “reconfiguration of the GNU, rather than a breaking down of the concept of the GNU” in its entirety.

Other risks facing South Africa’s growth and performance were related US/South Africa relations. With US President Donald Trump insisting on Wednesday that “bad stuff” was happening in South Africa, some economists believe that diplomatic efforts to mend relations between the two countries have yet to yield results or headway.

“We do think that the approach that South Africa is taking, is more on negotiating in the background through the diplomatic channels, rather than to pursue on the public fights,” explained Rusike.

“So perhaps that could find a way of making compromises along the way and perhaps improve relations over time, rather than what they appear to be today.”

BUSINESS REPORT