Policy uncertainty in South Africa during the third quarter of the year as measured by the new Policy Uncertainty Index (PUI) dipped below the 50-index-points mark for the first time since the inception of the index, which is produced by North-West University School of Business and Governance.

However, the reduction in policy uncertainty in the third quarter could have been a “temporary response” to an “exceptional” combination of factors.

The PUI index registered 52.5 points in the second quarter of this year and 50 in the third quarter of last year, contracting to 46.5 in the quarter under review, showing a decline in policy uncertainty over the preceding quarter and corresponding period last year.

The index clarifies that an increase above 50 reflects heightened policy uncertainty and a decline below 50 means reduced uncertainty.

The index pointed to policy-certainty-enhancing factors such as better-than-expected economic growth figures in the second quarter; indications of a receding drought; stabilising inflation and a seeming end to the rising interest rate cycle; and the elimination of electricity constraints.

In addition, South Africa improved two rankings to 47 in the World Economic Forum’s latest yearly Global Competitiveness Index, delivered a “positive reaction” to the outcome of the local elections in August, and its trade deficit is on a downward trend, besides others.

The country also managed to avoid a junk status downgrade from certain credit rating agencies in the second quarter; however, the risk of junk status remains a “clear and present danger” for the economy as South Africa is reassessed at the end of the year.

“It is possible that perceptions around policy and policy uncertainty in the third quarter may have been unduly influenced by the widely held impression that the rebound in the economy in the second quarter would strongly continue for the rest of the year,” the PUI noted.

“It remains necessary to allow for the future impact on the PUI of ongoing political uncertainty, a possible Cabinet reshuffle, regulatory issues, wage rises in several sectors and the outcome of the national minimum wage process.”

The index concluded that the economy was “not yet out of the woods”.