‘Moderate economic growth next year’
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.”