The North West University (NWU) Business School Policy Uncertainty Index (PUI) has remained deep in negative territory, at 58, during the third quarter.

This compares with a level of 57.4 in the second quarter, with the baseline being 50.

An increase beyond 50 reflects heightened policy uncertainty, while a decline means reduced uncertainty.

Policy is considered to have important implications for business confidence and the investment climate in the country and strongly influences investment, employment and a country’s output.

The design of a policy uncertainty index for South Africa was spurred by not only economic circumstances, but also by the increasing academic and policy interest globally around the cause, effect, measurement and definition of policy uncertainty.

The latest forecast from the International Monetary Fund is that global economic growth will come in at -4.9% this year, while it predicts that global economic growth will be 5.4% next year. Growth in sub-Saharan Africa is expected to be -3.2% this year and 3.4% in 2021.

South Africa’s gross domestic product (GDP) is expected to contract by about -10% this year.

NWU Business School Professor Raymond Parsons says the global economic recovery after Covid-19 and the risks of a “hard” Brexit by the end of the year will weigh on South Africa’s economic recovery, as will Eskom’s load-shedding as it is South Africa’s biggest risk to economic recovery.

Parsons points out that sustained economic growth in South Africa will depend on a credible Medium Term Budget Policy Statement, which will be delivered in October, and successful implementation of pro-growth economic reforms on government’s part.

The outlook for global trade this year is now somewhat better than that for world GDP, with a recent drop in world trade having been smaller relative to GDP.

After taking an initial knock earlier in the year, global trade volumes have recovered. This resilience has challenged recent experience, as well as previous pessimistic forecasts.

The robustness of the world’s production apparatus was apparently still able to underpin positive trade flows. And pandemic-engendered demand also enlarged certain markets for some products internationally, says the NWU.

Further, with lockdowns lifted more quickly than expected in export powerhouses like China and Germany, it was possible to reopen factories and boost output sooner.

Parsons states that central bank liquidity measures have also kept trade finance flowing. This relative trade buoyancy – in addition to better weather conditions in South Africa – may explain why South Africa’s agricultural sector has performed positively during the country’s prolonged Covid-19 lockdown.

But, although world trade has recovered relatively well in the third quarter, the World Trade Organization nonetheless warns that global trade is not yet out of the woods.

Meanwhile, Parsons says the third quarter had continued high levels of uncertainty, unprecedented growth “shocks”, renewed load-shedding and an unsustainable fiscal position.

He adds that it is now mainly domestic fiscal management and the implementation of economic reforms in the months ahead that will drive South Africa’s growth trajectory over the next few years. 

Parsons explains that, in the meantime, the short-term pace of economic recovery in the country will depend on trends in the world economy, the efficacy of existing, but temporary, economic support measures and the further opening up of the economy as the lockdown exit strategy proceeds.

He believes the remainder of the year will likely see a slow but steady economic recovery, which could have a positive impact on levels of uncertainty recorded by the PUI.