Economy off life support, in ICU
Economists predict 0.7% to 0.9% growth for 2018.
The economy is off life support but weak confidence, electricity supply constraints and uncertainty before next year’s election may conspire to keep economic growth below levels that will appease ratings agencies or support meaningful job creation.
SA officially emerged from a technical recession in the third quarter, after gross domestic product (GDP) climbed 2.2%. The second-quarter slump was revised from 0.7% to 0.4%.
However, the economy remains weak and economists predict 0.7% to 0.9% growth for 2018 (2017: 1.3%).
Old Mutual Investment Group’s Johann Els says: “We expect growth to continue to pick up on a cyclical basis next year and then, after the elections – as policy certainty hopefully comes through – some better growth...”
While Business Unity South Africa (Busa) president Sipho Pityana said: “… the time for talking is over – we have entered a phase where we need to act swiftly and decisively and make the necessary changes, reforms and interventions required.”
Els says there has been steady progress on many fronts, including cabinet improvements, commissions of inquiry into state capture and Sars, new boards at Eskom, Transnet and Denel, and a new mining charter. Together these will stabilise confidence.
If policy certainty returns and confidence improves, economic growth could recover to 2% in 2019 and 2.5% in 2020.
While load shedding is a risk to the economic outlook, it’s difficult to ascertain the extent thereof.
“We don’t know what industries are being impacted on a daily basis, but we have to assume that it is going to pull down growth.”
Busa chief executive Tanya Cohen says it’s “particularly perturbed” about load shedding’s negative economic impact and Eskom’s dire financial situation.
“We cannot afford a repeat of 2008. There is no fiscal space to bail out Eskom or any other SOE (state owned enterprise)... We are extremely concerned about National Treasury’s ability to contain the budget.”
PPS Investments’ Reza Hendrickse says forecasts currently expect growth to accelerate towards 2% in 2019, but with global growth having plateaued, the backdrop for accelerating domestic growth could be challenging.
CEO Initiative’s Jabu Mabuza says a lot of work remains to be done before SA can achieve growth that would sustainably improve the lives of its most vulnerable.
“A more investor-friendly environment, along with the impact of the government’s stimulus efforts and recovery plan, should result in a sustainable economic improvement over the medium term.”