Differing views on SA’s likely growth path
S&P GLOBAL Ratings yesterday said a range of negative shocks that dragged down the South African economy had run their course, while the World Bank predicted that 2016 would leave South Africans worse off on average.
S&P said it expected subdued growth of 1.4 percent this year and 1.8 percent in 2018.
As a result, in per capita terms, South Africa’s real gross domestic product (GDP) growth would move into positive territory only in 2018.
The ratings agency said negative shocks that dragged down GDP growth in South Africa, such as falling commodity prices and a severe drought, had run their course.
“Nevertheless, long-standing structural constraints, such as a skills shortage and rigidities in labour and product markets, still hold back economic growth. Political tensions remain high, weighing on the confidence of domestic and foreign investors,” it said.
S&P said a weak macroeconomic environment, high household indebtedness and rising interest rates burdened the housing market.
“Residential property prices stagnated in real terms in 2016 as above-market inflation eroded nominal price gains,” S&P senior economist Tatiana Lysenko said.
“Home prices improved at the end of 2016 as financial conditions stabilised. Still, subdued economic growth, persistent very high unemployment and elevated consumer indebtedness do not bode well for the South African market in the near term, especially if interest rates continue to rise.”
S&P projected muted nominal house price growth of 5.5 percent this year, which would imply stagnation of prices in real terms. The forecast for nominal house price growth is 6.5 percent in 2018.
The World Bank said in its ninth South Africa economic update it estimated growth in 2016 to be 0.4 percent, making it the third year of declining GDP growth, leaving South Africans worse off on average.
“GDP is set to accelerate in 2017 and 2018, to 1.1 percent and 1.8 percent respectively, a modest recovery propelled by improving commodity prices, dissipating drought effects, and domestically by strengthening consumption and, cautiously, exports.”
The bank said stronger growth was also expected to be supported by a markedly improved supply of electricity and smoother labour relations.
“Although accelerating, growth will still fall short of the pace that is needed to create 11 million jobs in order to reduce unemployment to 6 percent by 2030, and achieve significant reductions in poverty and inequality.”
World Bank senior economist Marek Hanusch and programme leader Sébastien Dessus say last year’s estimated growth of just 0.4 percent has left the average South African worse off.