SARB’s reduced economic growth forecast ‘troubling’ – Parsons

20th July 2018 By: Marleny Arnoldi - Deputy Editor Online

The announcement by the South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MCP) that it has reduced its forecast for South Africa’s gross domestic product growth for this year sends a troubling message, says North-West University business school economist Professor Raymond Parsons.

He notes that it is clear from the MPC's latest analysis that the South African economy is still facing some significant headwinds over the next few months.

“The fact that the MPC has reduced its growth forecast for 2018 from 1.7% to 1.2% is troubling and confirms similar recent downward revisions of growth expectations by several private sector economists.

“Apart from anything else, weak economic growth now puts a strain on the original 2018 growth targets outlined in the February 2018 Budget Speech and on the fiscal commitments that have been made,” he adds.

Together with what the MPC describes as higher-than-inflation public sector wage increases, if the Medium Term Budget Policy Statement in October reveals that South Africa has badly missed its fiscal targets, the economy would be placed at risk of further credit rating downgrades.

It is nonetheless also clear from the MPC's economic assessment that the country could improve its ratings and move back into investment grade territory if economic growth prospects improve and credible fiscal outcomes are attained.

“A turnaround in the economy is necessary. While recent political changes and steps to tackle governance issues have elicited positive reactions, investors still need to see policy certainty and consistency – ranging from land reform to the restructuring of State-owned enterprises – to boost fixed capital formation,” notes Parsons.

President Cyril Ramaphosa's drive to raise $100-billion of investment over the next five years, therefore, still largely depends on greater policy certainty and this must remain the highest priority if South Africa is to attain stronger job-rich growth.