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Less policy uncertainty in fourth quarter – index

31st January 2017

By: Anine Kilian

Contributing Editor Online

     

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There was less policy uncertainty in South Africa during the fourth quarter of 2016 than in the third quarter, with the North-West University (NWU) School of Business and Governance’s Policy Uncertainty Index (PUI) having improved to 38.8 index points, from 46.5 in the third quarter.

The PUI found that there were proportionally fewer articles in the media that mentioned policy and uncertainty.

Further, the majority of economists felt that the level of policy uncertainty remained the same in the fourth quarter.

“Slightly more than half of the sample felt that politics were more uncertain, while three-quarters reported that consumers faced increased uncertainty in the second quarter,” said NWU economics professor Dr Waldo Krugell.

Unpacking the latest PUI findings at a media briefing, in Johannesburg, he noted that business confidence had, however, increased marginally in the fourth quarter of last year.

“South Africa marked a second consecutive quarter of growth in the third quarter and the fourth quarter had prospects of a stable inflation outlook, somewhat stronger exchange rate and better forecasts for rain,” he added.

Krugell highlighted that the Bureau of Economic Research’s figures on the proportion of manufacturers that indicated that politics was a constraint to doing business was unchanged at 75 in the fourth quarter.

He added that, overall, reporting and sentiment in the fourth quarter reflected the “green shoots" seen in international and local economic prospects, the upcoming Medium-Term Budget Policy Statement by Finance Minister Pravin Gordhan and the reprieve offered by credit ratings agencies.

Though a number of longer-term unknowns persist, short-term uncertainty declined.

“In 2017, South Africa should, therefore, start to vigorously implement structural reforms that would begin to raise the country’s outlook from negative to stable. The next major economic policy event that will need to reinforce such an approach is the 2017/18 Budget Speech at the end of February. The National Treasury, credit ratings agencies and most economists agree on the need for continued fiscal consolidation,” Krugell said.

He added that the country needed a tax mix in the forthcoming budget that would do the least harm to growth and employment.

“The risk is that South Africa will drift into a chronic tax-and-spend cycle, which has been the bane of several other economies.”

Krugell stated that expected tax increases in February will help close the R28-billion fiscal gap.

Further, he noted that a rough estimate suggests that one-third of that gap is expected to be filled by fiscal consolidation resulting from fiscal discipline and about two-thirds from increased tax revenues.

“Unless State spending can be further disciplined, solutions will have to be found in higher taxes, new taxes or more efficient tax collection. By international standards, South Africa already has excellent tax compliance, and the South African Revenue Service has a good record in collection.”

Overall, Krugell explained that tax revenues have held up reasonably so far, given a weak economy.

However, serious doubts have been expressed by competent economic authorities about the sustainability of tax revenues, with slightly better, yet low, economic growth rates projected for the 2017/18 period.

“While the business cycle appears to have stabilised, the growth rate in 2016 was probably only about 0.5% and the economy narrowly escaped a technical recession,” he said.

He added that the country can expect economic growth of about 1% in 2017 and just over 1.5% in 2018.

“These performances are below population growth and woefully inadequate to support South Africa’s socioeconomic needs,” Krugell said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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