Confidence needed urgently

Latest forecasts from the IMF and World Bank on SA’s economic growth make for gloomy reading. The IMF briefly lifted its 2017 forecast from 0.8% in April to 1% in July. Now it has cut it again, to 0.7%, rising to just 1.1% in 2018. The World Bank’s forecast for 2017 is a fraction lower than that of its sister organisation.

Their projections are similar to those of many privatesector economists, and higher than some. But the numbers from the two Washington-based multilateral institutions tend to have an authority that private-sector forecasts may not. They also set SA in a global and regional context in a way that is distinctly uncomfortable — or should be.

SA is one of only a couple of leading countries on the IMF’s table, in its latest World Economic Outlook, to have its growth outlook downgraded. Most have stayed the same since July or been upgraded and the fund’s economists have upgraded their forecast for global growth, with the global economy now seen growing at 3.6% in 2017 and 3.7% in 2018, up from 3.2% in 2016, led by robust growth in advanced economies in particular. And even though emerging markets aren’t shooting the lights out as they once were, SA’s meagre growth prospects put it far below the expected 4.6% average for emerging and developing markets.

In the past, SA’s growth tended to track global growth, more or less. But in the past four years or so, SA has decoupled from the global trend: as the world economy has picked up, SA has fallen further and further behind. Now, SA’s economy is failing despite the recovery in global growth. The IMF and World Bank reports serve to highlight that sad divergence. The IMF expects SA’s growth to remain “subdued” despite more favourable conditions, “as heightened political uncertainty saps consumer and business confidence”.

The danger now is that SA is stuck in a vicious cycle of low confidence, which results in low investment and low consumer spending, which in turn cuts growth, while the poor outlook in itself saps confidence further. It would take a major political turnaround to start reversing that. But SA’s past experience — at the birth of democracy, for example — has shown just how smartly the economy can bounce if confidence revives.

Whether the ANC’s December elective conference will be the magic political bullet to do that is the big question. But what is not in question is that if confidence and growth do not revive, and soon, the country faces some potentially dire fiscal and sovereign ratings consequences, which could worsen the growth outlook.

And that’s not to mention the social and political consequences of the fact that on average every South African has been getting poorer, because the economy is growing much more slowly than the population and is set to continue doing so for at least the next couple of years.

Going into the medium-term budget on October 25, it is clear that growth and revenue targets cannot be met, that the deficit for the current fiscal year will come in substantially higher than projected and that the targets for the next two years are unlikely to be met either, unless the government is willing to do some major adjusting on the spending or revenue sides or both. The World Bank’s report, which is its bi-annual Africa Pulse report, flags rapidly rising public debt and shrinking fiscal space as a particular concern for the region’s economies, including that of SA.

It will certainly be a concern for the ratings agencies, which have held off from further downgrades in large part because SA has frequently promised to stay on the path of the fiscal consolidation it planned. Without a lift in the growth rate, staying on that path is likely to prove close to impossible and further downgrades loom, by the middle of 2018 if not before.

WHETHER THE ANC’S ELECTIVE CONFERENCE WILL BE THE MAGIC BULLET … IS THE BIG QUESTION