The North West University Business School’s Policy Uncertainty Index (PUI) eased to 59.6 in the third quarter from 60.9 in the second quarter (baseline 50), the latter having been the highest on record since the inception of the index in 2015/16.

This, together with the elevated first-quarter PUI, had been mainly driven by the big shock of the Russian-Ukraine conflict in February and the global economic uncertainties it subsequently generated, NWU Business School Professor Raymond Parsons indicates.

“But positive factors have nonetheless been able to marginally outweigh negatives ones in the past quarter to slightly reduce the third-quarter PUI, although it remains well in negative territory,” he adds.

According to the PUI, the global economic outlook and elevated uncertainty continues to be driven by stubborn inflation, recession fears, hawkish central banks and geopolitical tensions, Parsons outlines.

He points out that interest rates have been steadily raised by many central banks, including the US Federal Reserve, in an effort to come to grips with inflation and inflationary expectations.

For South Africa, the main global factors influencing the level of uncertainty have been the interaction between prospects for a global recession or ‘stagflation’; the outlook for energy and food prices; the emergence of dearer money; possible lower commodity prices; and the impact of a strong dollar.

Parsons says there have been mixed domestic economic trends in the quarter, following the ‘bad news’ of the previous quarter, resulting in a 0.7% contraction in gross domestic product (GDP).

“Business and consumer sentiment has remained vulnerable in an economy that struggles to gain momentum. Borrowing costs have again risen and continued Eskom ‘blackouts’ hang like a Sword of Damocles over South Africa’s economic performance,” Parsons says.

The PUI shows that domestic spending is expected to grow at a slower pace, constrained by inflation and higher borrowing costs.

On present trends, the GDP growth outlook is now likely to be 1.7% this year and 1.2% in 2023, respectively, with risks to the forecasts on the downside.

Parsons says banking company Nedbank anticipates the gradual recovery in fixed capital formation to continue.

The underlying economic assumptions and priorities previously shaping the Medium Term Budget Policy Statement (MTBPS) later this month will now need to be revisited, he states.

“Despite the lower third-quarter PUI, therefore, the potential exists for several sources of renewed policy and economic uncertainty to assert themselves domestically in the period ahead.

“There are downside risks to the growth outlook. These range from the persistent lack of energy security to weak policy and project implementation, to the impact of higher borrowing costs, as well as political leadership factors such as the outcomes of the ANC elective conference in December,” Parsons explains.

“The challenge now remains for decision-makers in both the public and private sectors to successfully navigate poorly charted waters to avoid rocks of uncertain location.

“The country must therefore speedily implement growth-supporting economic and business strategies that build resilience in ways that can still help to offset global headwinds. Confidence-building is said to be the cheapest form of economic stimulation,” Parsons posits.