South Africa’s economy has been revised down to grow at a rate of 0.5% in 2016, National Treasury said on Wednesday.
The downward revision comes after Finance Minister Pravin Gordhan projected the gross domestic product (GDP) would propagate at 0.9% in his February 2016 budget.
“Growth is expected to increase to 2.2% by 2019, supported by more reliable electricity supply, improved labour relations, low inflation, a recovery in business and consumer confidence, stabilising commodity prices and stronger global growth,” National Treasury said as Minister Gordhan tabled the Medium Term Budget Policy Statement (MTBPS) on Wednesday.
National Treasury said growth in real output remained moderate in the first six months of the year compared with the same period in 2015.
While growth in the mining sector declined, the agricultural output weakened as a result of the devastating drought.
Growth in transport and telecommunications, and in electricity, gas and water, fell on weak demand. The manufacturing output strengthened following a contraction in 2015, while the finance, real estate and business services remained buoyant, National Treasury said.
“To achieve the goal of economic transformation and build an equitable society, South Africa requires higher growth.
“Without decisive action, a protracted period of low growth will set back the country’s ability to realise the constitutional vision to ‘improve the quality of life of all citizens and free the potential of each person’.”
While global economic weakness plays a large role in South Africa’s economic growth performance, domestic constraints stand in the way of investment, output and trade.
National Treasury said the slow pace of finalising policy interventions in areas such as land reform, immigration, labour relations, mining and communications undermines confidence, which is a key determinant of economic activity. Government must demonstrate more rapid implementation to restore confidence and give hope to citizens.
Global economic affairs impacting SA
Treasury said South Africa’s growth revision comes as the global recovery from the 2008 financial crisis remains precarious, with growth forecast at 3.1% in 2016 and 3.4% cent in 2017.
Productivity growth has slowed across advanced and emerging economies.
“Countries that are highly reliant on foreign savings, such as South Africa, will remain vulnerable to global financial volatility and rapid capital outflows.”
National Treasury also said that the outlook for sub-Saharan Africa is marked by low commodity prices and falling export revenues, which have led to foreign currency shortages.
The 2016 growth forecast for the region has been revised down from 3 per cent in April to 1.4%, with large economies such as Nigeria and Angola hard hit by low oil prices and disruptions in production.
“Slower growth in the region and global trade weakness limit South Africa’s export potential.
“Greater economic integration with the rest of the continent would enable export-orientated South African firms to capitalise on stronger pockets of growth and increase their share of African trade.”
National Treasury said its economic forecast incorporates the outlook for 15 major trading partners, as presented in the October 2016 World Economic Outlook, published by the International Monetary Fund (IMF).
“Average growth of 4.1% is forecast for these economies in 2017.”
Meanwhile, National Treasury says over the short term, the United Kingdom’s intention to leave the European Union (EU), South Africa’s traditional trade partner, will remain a source of financial volatility, alongside concerns about the health of major European banks.
Brexit’s long-term effects, including on South Africa, depend on timing and the nature of trade and investment treaties to be negotiated with the EU, the National Treasury said. – SAnews.gov.za