‘Mod­er­ate eco­nomic growth next year’

The Star Early Edition - - BUSINESS REPORT - Sizwe Dlamini

SOUTH Africa’s eco­nomic growth is pro­jected to weaken fur­ther this year be­fore pick­ing up mod­er­ately next year as pri­vate con­sump­tion and ex­ports rise on the back of a re­cov­ery in com­mod­ity prices.

This is ac­cord­ing to a re­port by the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and De­vel­op­ment (OECD) yes­ter­day on the coun­try’s eco­nomic out­look for this year.

The re­port said un­em­ploy­ment and in­equal­ity would re­main high, re­flect­ing the large gap in skills and the low qual­ity of ed­u­ca­tion, while in­fla­tion would ease.

The OECD said mone­tary pol­icy had been slightly ac­com­moda­tive since March last year, which was ap­pro­pri­ate, be­cause peaks in the in­fla­tion rate were driven by tem­po­rary shocks, such as a se­vere drought. Con­tin­ued de­pre­ci­a­tion of the rand, be­cause of credit rat­ings down­grades, could have sec­on­dround im­pacts on in­fla­tion.

It said the South African Re­serve Bank might have to com­mu­ni­cate its readi­ness to act to en­sure that in­fla­tion ex­pec­ta­tions re­main an­chored.

“A mod­er­ate fis­cal con­sol­i­da­tion to sta­bilise debt lev­els should be pur­sued, while so­cial trans­fers should be pre­served to re­duce in­equal­ity and poverty,” the re­port said.

“Bold struc­tural re­forms are needed to boost growth, es­pe­cially more com­pe­ti­tion in the net­work and ser­vices sec­tors, and to im­prove the ed­u­ca­tion sys­tem.”

The OECD said greater re­gional in­te­gra­tion could boost growth by broad­en­ing lo­cal com­pa­nies’ ac­cess to mar­kets and re­sources.

It said that if trade bar­ri­ers were re­moved, South African firms could ben­e­fit, be­cause they have bet­ter fi­nan­cial re­sources and ad­vanced tech­nolo­gies.

The OECD said growth last year was the low­est in 16 years, ex­clud­ing the 2009 re­ces­sion.

“Po­lit­i­cal un­cer­tainty re­mained high, weigh­ing on busi­ness and con­sumer con­fi­dence,” the OECD said, adding that in­vest­ment lev­els would re­main low this year.

“Per­sis­tent high un­em­ploy­ment and a high level of in­debt­ed­ness will keep house­hold con­sump­tion low,” the re­port said. “On the gov­ern­ment side, ex­pen­di­ture growth will re­main mod­er­ate, as ris­ing debt is still call­ing for con­sol­i­da­tion. Ex­ports will sup­port de­mand, as com­mod­ity prices are pick­ing up and growth is firm­ing in South Africa’s main for­eign mar­kets.”

The OECD said the cur­rent ac­count deficit had fallen as a re­sult of the slow growth of do­mes­tic in­comes, which had re­duced im­ports.

How­ever, it said the terms of trade ben­e­fited from the ap­pre­ci­a­tion in the rand last year and the pick-up of in­ter­na­tional com­mod­ity prices.

The OECD said fis­cal con­sol­i­da­tion would con­tinue to limit the growth of debt.

“The main risks to debt sus­tain­abil­ity stem from the con­se­quences of the rat­ings down­grade and ris­ing con­tin­gent li­a­bil­i­ties in state-owned en­ter­prises.”

It said the pro­posed na­tional min­i­mum wage would po­ten­tially af­fect six mil­lion work­ers, about 47 per­cent of all wage earn­ers. It should sub­stan­tially re­duce poverty among low-skill work­ers.

The OECD said it pro­jected a mod­er­ate in­crease in gross do­mes­tic prod­uct this year, as in­vest­ment re­mained sub­dued and house­hold con­sump­tion growth mod­er­ated.

“A growth pick-up next year will come mainly from ex­ports sup­ported by higher com­mod­ity prices,” it said.

“The level of con­fi­dence in the econ­omy is frag­ile given the un­sta­ble po­lit­i­cal en­vi­ron­ment. A rise in po­lit­i­cal ten­sions could fur­ther re­strain pri­vate in­vest­ment. The rand also re­mains highly re­spon­sive to US in­ter­est rates, and hence ex­posed to their in­creases. And, as the UK is South Africa’s largest Euro­pean trad­ing part­ner, un­cer­tainty about the im­pact of Brexit may af­fect im­ports and fi­nan­cial flows.”

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