Growth outlook good

SOUTH AFRICA’S ECONOMIC ESTIMATES LIFTED Growth projections of 1.5%, 2% or more for 2018 are the new normal – assuming the global economic recovery continues.

‘Ramaphoria” has hit many sections of South Africa. Look no further than economic growth projections, which show a more optimistic path for the economic revival than a year ago.

Cyril Ramaphosa’s presidency, which might balance market expectations by proposing pro-business and investor policies against populist ANC strains, is prompting many economists and institutions to revise their 2018 economic growth forecasts upwards.

Grow projections of 1.5%, 2% or more for 2018 are the new normal – assuming the global economic recovery and commodity prices continue and a stronger rand reins in inflation and boosts consumer spending.

The World Bank is the latest to sound an optimistic note, mildly lifting its early economic growth estimate to 1.4% for 2018 (from 1.1%) and for 2019 to 1.9%, (1.7%).

Its projections are still below National Treasury’s forecasts of 1.5% for 2018 and 1.8% for 2019.

The bank’s projection is also well below the average of emerging market countries with similar wealth levels, which are pencilling in growth of 4.5% for 2018 and 4.7% for 2019.

“Nobody should get excited by less than 2% growth. It is low and won’t make a difference when other emerging markets are growing at a rate of 4% and 5%. This is where we want SA to go,” said the World Bank’s Marek Hanusch.

An improvement in business and consumer confidence under Ramaphosa doesn’t necessarily translate to economic growth, he warned. “Although a revival in confidence is good, the economy requires actual business investments. Confidence is intangible, unless you are seeing investment decisions being made.” Although private sector investments have rebounded, the investment level is still low. Goldman Sachs also revised growth up to 2.3% in 2018 (1.5%). It expects a Ramaphosa presidency to deliver more market-friendly economic policies, which would provide an impetus for growth and position SA as the next top emerging market investment destination, akin to Brazil in 2016 and Mexico in 2017.

Sovereign analyst Gardner Rusike welcomed Ramaphosa’s efforts to reform state-owned entities (SOEs), and government’s return to fiscal consolidation.

However, Rusike warned that February budget targets still showed fiscal deterioration, although the situation has improved versus October’s mini budget.

A R50.8 billion revenue shortfall would be plugged through the VAT increase. Early estimates were that public debt would exceed 60% of GDP by 2020-21, but February’s budget revised it down to 56%.

So, is the optimism in growth projections justified?

RMB’s Isaiah Mhlanga reckons so. “There are clear changes in the leadership of SOEs and government has taken some steps to improve their governance,” he said. “This is an important development, but we are still to see reform progress in other areas.” .

This is where we want SA to go.