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Unrest in South Africa will shrink the economy 3% in the third quarter – JPMorgan

A general view of the burning warehouse following the outbreak of violence following the imprisonment of former South African President Jacob Zuma in Durban, South Africa, on July 14, 2021. REUTERS / Rogan Ward

LONDON, July 16 (Reuters) – The unrest that gripped South Africa last week will shrink its economy 3% in the third quarter and dampen growth for the full year, Wall Street bank JPMorgan said on Friday.

Riots broke out in several parts of the country, which has the most industrialized economy in Africa, after former President Jacob Zuma was arrested last week for failing to appear on a corruption investigation. Looting Week destroyed hundreds of businesses and killed more than 100 people. Continue reading

The flare-up prompted JPMorgan to revise its quarterly growth forecasts for the third quarter significantly down from an earlier estimate of -0.5%.

“The wave of violence and looting has inundated Gauteng and Kwazulu Natal (KZN), two provinces that are responsible for more than half of South African GDP,” said Sonja Keller in a customer statement.

“Some knock-on effects in relation to interruptions in the supply chain are also becoming more and more apparent, as parts of the port area of ​​the state-owned logistics company Transnet and the largest crude oil refinery in the country Sapref temporarily suspend operations in KZN and thus risk delays in the export of fresh products. “

The bank has cut its growth forecast for the year as a whole from 4.9% previously to 4.5%.

On Thursday, Deutsche Bank estimated the riots in South Africa could slow economic growth by 0.8% this year, while rating agency Moody’s said the riots would likely prove costly in terms of property damage and dampen muted confidence and that burden general economic activity.

S&P Global Ratings said Friday that events did not bode well for the investment climate.

“There is a cost, there has been a lot of damage,” said Ravi Bhatia, director of S&P Global Ratings. “You have to rebuild. There’s always a reluctance to invest unless you have guaranteed security.”

Looking ahead, JPMorgan’s Keller said the social strain and general dissatisfaction could well influence policy-making, particularly underpinning calls for a reintroduction of the COVID grant during the current mobility restrictions.

JPMorgan expected the central bank to keep rates stable for the time being when policymakers meet on July 22, but with a restrictive change of tone.

“A normalization cycle would begin in September with a follow-up hike in November rather than our base case of a hike in November,” said Keller. “We see the probability of hiking at this meeting to be around 30%.”

Reporting by Karin Strohecker; Editing by Tom Arnold and Angus MacSwan

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