The good and the bad in South Africa’s economy right now

South Africa has been off to a good start in 2018, with recent data released by Stats SA pointing to more positive momentum in the economy than previously thought.

The country grew by 1.3% in 2017, beating the consensus estimate of economists, and the revised numbers no longer record a technical recession early in the year.

In addition confidence is up in 2018, primarily because of new president Cyril Ramaphosa, according to senior economist at the World Bank, Marek Hanusch.

“President Cyril Ramaphosa has demonstrated a strong commitment to strengthening institutional integrity – especially in state-owned enterprises – reaching out both to business and labor, and pronouncing his intention to build a new social compact in the country,” he said.

“Finally, the 2018 budget returned to the government’s long-standing commitment to fiscal consolidation, which appeared to have been temporarily abandoned in the 2017 Medium-Term Budget Policy Statement.

“Business and consumer confidence is up, and market appetite for South African securities strengthened.

“The rand strengthened by about 12% since the African National Congress (ANC) elective conference and 10-year government bond yields are down to levels last seen in 2015, reducing borrowing costs,” he said.

Growth

Fueled by the confidence boost – and much more benign inflation – South African growth is expected to accelerate, said Hanusch.

As a result many economists, including those at the World Bank, have revised their growth forecasts upwards.

In its latest publication, the 11th edition of the South Africa Economic Update, the Bank predicts growth of 1.4% in 2018 and 1.8% in 2019 (previous estimates were 1.1% and 1.7% respectively).

However these estimates are on the conservative side, said Hanusch.

“This is largely owed to the fact that confidence still needs to translate into consumer spending, which may be weighed down by the revenue measures of the 2018 budget, and into investment,” he said.

Caution needed

While Hanusch noted that South Africa was on a clear upward trend, there were still several reasons that may keep investors cautious.

“Mining is still held back by uncertainty over legislation, even though the government has reached out to resolve disputes over the country’s third Mining Charter.

“In addition, World Bank projections suggest that prices for South Africa’s raw materials will remain modest or decline (as in the case of coal),” he said.

Hanusch also noted that the vote to review the Constitution to potentially make it easier to expropriate without compensation is likely to weigh on investment in commercial agriculture.

In addition, he warned that the manufacturing sector has been struggling to increase global competitiveness and its weak integration into global value chains limits its opportunities to grow with the world economy.

“Whether growth picks up beyond a modest cyclical rebound will depend on the government’s ability to deliver against high expectations to reduce policy uncertainty and accelerate structural policies that can raise the growth potential of the South African economy more meaningfully,” Hanusch said.

“The most recent economic update simulates various reform scenarios and their impact on jobs, poverty, and inequality.

“It holds some potential good news for South Africa, as inequality is likely to decrease from current levels (South Africa is the most unequal country in the world, according to the Bank’s recent Poverty and Inequality Assessment).

“Growth and jobs creation will play an important role in making South Africa less unequal, which will help the government’s efforts to strengthen the social compact,”  he said.


Read: S&P lifts South Africa’s growth forecast to 2%

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