Although South Africa’s banks are well-capitalised and therefore capable of withstanding higher default rates, this raises concerns both for consumer demand, an important driver of GDP growth, and the wellbeing of these financially vulnerable households. Will South Africa experience a “sudden stop”?
Given South Africa’s vulnerabilities, the question is not if world monetary normalization will affect us but rather how quickly and dramatically it will do so. The worst-case scenario is that we suffer a sudden stop, meaning inflows abruptly cease.