The OECD’s latest Interim Economic Outlook has revised South Africa’s growth rate expectations for 2018 and 2019 upward, on the back of positive sentiment around the economy and changes to the political landscape.
The OECD projects that the global economy will grow by 3.9% in both 2018 and 2019, with private investment and trade picking up on the back of strong business and household confidence. Inflation is set to rise slowly.
“Growth is steady or improving in most G20 countries and the expansion is continuing,” the group said.
“The Outlook underlines the boost to short-term growth expected from new tax reductions and expected spending increases in the United States and expected fiscal stimulus in Germany, but also points out a number of financial sector risks and vulnerabilities, as well as those posed by a rise in protectionism.”
For South Africa, the OECD has revised the expected GDP growth rate upward to 1.9% in 2018, and 2.1% in 2019 – higher than the growth rate currently targeted by National Treasury.
National Treasury currently anticipates growth of 1.5% in 2018, rising to 2.1% in 2020.
However, the growth rate is still very slow compared to other G20 nations, and well below the average for the group, which is expected at 4.1% in 2018 and 4.0% in 2019.
Last week, Stats SA reported higher than expected GDP growth for South Africa in 2017, showing that the economy grew by 1.3%, exceeding National Treasury’s expectation of 1.0%.
The reported figures also flew in the face of market expectations, which ranged from the exceptionally bearish at 0.2%, to the more generally predicted 0.8%.
The South African economy has been heading in a stronger direction in recent weeks, riding a wave of positive sentiment following the election of Cyril Ramaphosa as the new president.
However, economists and analysts have warned that these gains could also falter as the so-called ‘honeymoon period’ starts to give way to the economic realities of South Africa’s tight budget, high rates of unemployment and political uncertainty around key issues like land reform.