• Isaah Mhlanga

Reviving South Africa’s economic growth – we need fiscal credibility, economic reforms and an invest

Global outlook – slightly more supportive

Global economic growth has stabilised but the recovery remains sluggish. The slowdown in the United States and China is expected to be more than offset by improvement in some large emerging markets, the euro area and the United Kingdom. Inflation expectations remain stable, at or below targets in advanced economies and trending lower in emerging markets. Consequently, monetary policy in many advanced economies is expected to remain loose, which will support global growth.

The direction of the US dollar has a disproportionate impact on the global economy as global trade is priced in US dollars to a large extent. The US dollar is expected to weaken against major currencies, which implies that the emerging market exchange rate driving inflationary pressures will remain muted. This will help emerging market economies and global economic growth.

The biggest four global risks that dominated financial markets in 2019 have been reduced:

  • US–China phase one trade deal

  • Boris Johnson’s decisive victory in the UK elections

  • De-escalation of the US–Iran tensions

  • US recession risks

This has revived appetite for risk assets.

Domestic outlook – lifting economic growth

With a marginally supportive global outlook, we would have expected South Africa’s economic growth to pick up as well. However, domestic constraints remain binding. Electricity shortages, a weak consumer demand, and a constrained fiscus all contribute to weak economic growth outlook of about 1.0% this year and 1.5% in 2021.

To improve this growth outlook, three things are needed:

1. Re-establish fiscal credibility

This requires National Treasury to achieve the budget targets they set.

2. Implement structural economic reforms

The required structural reforms have been discussed at length – what remains is faster implementation, which has marginally improved so far.

3. Attract fixed investment

The success of implementing economic reforms will attract fixed investment, which will ultimately lift economic growth.