Pol­icy un­cer­tainty surges in sec­ond quar­ter

Down­grades, re­ces­sion, Min­ing Char­ter and pub­lic pro­tec­tor’s re­port hurt the econ­omy

The Star Early Edition - - NEWS - Ka­belo Khu­malo

NORTH West Univer­sity’s School of Busi­ness and Gov­er­nance yes­ter­day said that down­grades, re­ces­sion, the Min­ing Char­ter and Pub­lic Pro­tec­tor Bu­sisiwe Mkhwe­bane’s re­port on the SA Re­serve Bank pushed pol­icy un­cer­tainty up in the sec­ond quar­ter.

The school’s chief econ­o­mist, Ray­mond Par­sons, said that its Pol­icy Un­cer­tainty In­dex yes­ter­day showed that un­cer­tainty in­creased from 51 points in the first quar­ter to 53 in the sec­ond quar­ter.

Par­sons said the in­dex had in­creased by a whop­ping 15 points when com­pared to the last quar­ter of 2016.

He said that such high lev­els of un­cer­tainty in­hib­ited mean­ing­ful investment and con­sump­tion and con­trib­uted to slug­gish growth.


“Cor­re­la­tions have been found be­tween the pol­icy un­cer­tainty in­dex with eco­nomic out­comes,” Par­sons said.

“Em­pir­i­cally it shows that when eco­nomic pol­icy un­cer­tainty is strongly present in the en­vi­ron­ment, it in­deed low­ers investment, em­ploy­ment and out­put,” he added.

The school’s ob­ser­va­tions fol­lowed those of the Univer­sity of Stel­len­bosch’s Bureau of Eco­nomic Re­search which also in­di­cated that pol­i­tics was a con­straint on do­ing busi­ness in South Africa, in­creas­ing from 76 points to 87.

Rat­ings agency Moody’s last month also high­lighted re­duced growth prospects caused by pol­icy un­cer­tainty, slower progress with struc­tural re­forms, the con­tin­ued ero­sion of fis­cal strength due to ris­ing pub­lic debt, con­tin­gent li­a­bil­i­ties and the weak­en­ing of South Africa’s in­sti­tu­tional frame­work as con­cerns.

Par­sons cited de­vel­op­ments on the Brexit ne­go­ti­a­tions and the pace at which in­ter­est rates rise in the US, as well as the pos­si­ble im­pli­ca­tions for South African cap­i­tal flows as other fac­tors that im­pacted on un­cer­tainty.

He said the in­dex fur­ther found that the busi­ness cy­cle had been in a down­swing for about 44 months, mak­ing it the sec­ond long­est in the coun­try’s his­tory, sur­passed only by the one over the pe­riod 1989 – 1993.


Par­sons said the in­dex at­trib­uted the re­cent tech­ni­cal re­ces­sion to poor ex­ports, low govern­ment ex­pen­di­ture, higher un­em­ploy­ment, weak con­sumer spend­ing and stag­nat­ing pri­vate sec­tor investment.

He added that the real test of fis­cal management would be re­flected in the Medi­umTerm Bud­get Pol­icy State­ment in Oc­to­ber to see whether any fis­cal shocks emerge, es­pe­cially from over­sight is­sues on sta­te­owned en­ter­prises.

“Of im­por­tance to fu­ture lev­els of pol­icy un­cer­tainty will be how the pre­vi­ous com­mit­ment to fis­cal con­sol­i­da­tion fares with the new po­lit­i­cal team at the Trea­sury,” he pointed out.

“We must re­call that fis­cal pol­icy has in re­cent years been highly cer­tain and pre­dictable, as well as trans­par­ent.”

Finance Min­is­ter Malusi Gi­gaba has pre­vi­ously said that he sup­ported the in­de­pen­dence of the Re­serve Bank and joined its ju­di­cial re­view of the pub­lic pro­tec­tor’s re­port into an apartheid bailout given by the cen­tral bank to Bankorp/Absa, say­ing the con­sti­tu­tion did not con­tem­plate the pro­tec­tion of the cur­rency for its own sake, but in the in­ter­est of bal­anced and sus­tain­able eco­nomic growth.

Par­sons said the pro­posal had thus opened up a Pan­dora’s box of ad­di­tional risks for mar­kets and rat­ing agen­cies, at least over the longer term.

He said the in­dex also noted that the im­pact of the fi­nal Min­ing Char­ter in mid-June on mar­kets and the min­ing sec­tor was highly neg­a­tive.


Ray­mond Par­sons, chief econ­o­mist at North West Univer­sity’s School of Busi­ness and Gov­er­nance.

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