It will take a concerted effort to achieve growth target
THE TWO main focus areas of the Budget are, firstly, to limit the budget deficit to 3 percent or less of the total economy and, secondly, to enhance the growth rate of the domestic economy. Given all the international uncertainties affecting the growth of the world economy and the influence these have on the open South African economy, the achievement of these two goals is no easy task.
Trade policies Firstly, uncertainties regarding the economic and international trade policies to be pursued by the Donald Trump administration in the US affect us. The fear still exists that trade agreements, especially with developing economies such as South Africa, could be renegotiated, leaving the developing country in a worse-off position.
Will the effort to stimulate the US economy really push US growth levels to more than 2.5 percent and will it support growth of the world and the South African economy in general? Will it result in higher US inflation and interest rates? Will higher US interest rates result in an outflow of capital from South Africa in the coming year that will weaken the rand and push local interest rates higher and domestic growth lower?
Brexit Secondly, the uncertainties regarding the Brexit referendum, whereby the UK decided to leave the EU, will only start to have an impact on trade relations with other countries such as South Africa once the process has been set in motion – most likely from March onwards. It is likely that these UK/EU negotiations will take at least two years and create extensive uncertainties regarding the outcome during this period.
The renegotiation of trade agreements between the UK and EU are likely to affect the trading partners of the UK and EU until the outcomes are clear. These uncertainties could adversely affect growth of our international trade as these two entities are our major trading partners.
Furthermore, growth of our major trading partner in recent years, China,
is expected to slow down to 6.5percent or less this year from the 6.7 percent achieved last year. Although commodity prices have improved since their multi-year low levels at the beginning of last year, the slowdown of the major consumer of these products indicates that any further recovery of these prices is likely to be very modest.
Growth origins The domestic consumer remains under pressure and following the tax announcements of the latest budget indicates that growth has to originate from growth in international trade. The above-mentioned trends indicate that many uncertainties remain in the international domain, where a very large portion of our growth in the coming year(s) has to originate from.
This indicates that the Minister of Finance is still dependent on his colleagues to ensure that our accessibility to international trading markets remains open and improves to support domestic growth. It will take a concerted effort from all government departments to assist in achieving growth of more than 1percent in 2017/18 and ensure that the budget deficit is cut to 3 percent of gross domestic product or less in the coming fiscal year.