The index, released today, rose to 58.2 from 50.3 in the second quarter of this year. The baseline for the index is 50. File photo.
The index, released today, rose to 58.2 from 50.3 in the second quarter of this year. The baseline for the index is 50. File photo.

Policy uncertainty remains a considerable structural impediment to economic growth

By Edward West Time of article published Oct 4, 2021

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POLICY uncertainty in South Africa remained a serious challenge and reducing it required the creation of a credible macroeconomic environment that was solid, coherent and consistent, according to the North West University Business School Policy Uncertainty Index (PUI) for the third quarter of this year (3Q 2021).

The index, released today, rose to 58.2 from 50.3 in the second quarter of this year. The baseline for the index is 50.

The decline in the PUI in the first and second quarters of this year was said to have demonstrated that policy uncertainty levels could respond positively to policy shifts which build certainty and renew investor confidence.

In the index’s executive summary, NWU Business School economist Professor Raymond Parsons said the index was therefore highly elevated again after being on the brink of positive territory in the second quarter of 2021.

“It was previously in positive territory in the first quarter of 2018 at the inception of the Ramaphosa presidency. The overall global economic outlook continued to be positive, with the latest global growth forecasts from UNCTAD and the OECD averaging 5 percent in 2021.

The OECD has reduced its 2021 economic growth forecast for the US from 6.9 percent to 6 percent, but left its growth expectations for China unchanged at 8.5 percent,” said Parsons.

He said all credible international growth forecasts still emphasised “a tale of two recoveries” with the global recovery unevenly spread over countries depending on their progress with the vaccination roll-out and their pace of economic recovery.

The economist said continued high international commodity prices in 3Q 2021 reflected both global supply shortages and strong demand, which have also provided the local economy with a robust tailwind.

“The better-than-expected growth forecasts for 2021 as a whole now indicate that SA’s GDP growth could exceed 5 percent this year. However, the bulk of the ‘rebound’ in the economy is widely seen as being in the past and it is now necessary to look ahead to growth prospects beyond 2021,” said Parsons.

The authors of the index said with the SARB’s Monetary Policy Committee (MPC) reducing its growth forecasts for 2022 and 2023 to below 2 percent, such low growth rates would not make a big dent on the SA’s present high level of unemployment, which needs a growth rate of at least 3 percent to make a real difference.

The Quarterly Employment Statistics (QES) survey released by Statistics South Africa this week showed that from the first to the second quarter, the number of people employed in the formal, non-agricultural sector fell by 86 000 to nearly 9.57 million.

South Africa’s unemployment rate hit a new record high of 34.4 percent in the second quarter of this year from 32.6 percent in the first one.

The number of unemployed totalled 7.826 million people in the three months to the end of June, compared with 7.242 million people in the previous three months.

The rate was the highest since the quarterly labour force survey began in 2008.

According to this index, higher total fixed capital formation, especially private fixed investment, was needed to translate the present economic ‘rebound’ into sustained job-rich growth in the years ahead, based on solid, coherent and consistent policies.

The well-known constraints on higher inclusive growth, such as the absence of energy security, lack of policy coherence, weak confidence and slow progress with structural reforms, still required urgent attention to shrink policy uncertainty.

Parsons said the next Medium Term Budget Policy Statement (MTBPS) scheduled for next month, would need to embody a credible message about future policy direction.

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