Johannesburg - The World Bank added its voice yesterday to a plethora of forecasts of dismal economic growth of less than 1 percent that Finance Minister Pravin Gordhan has promised to disprove when he tables his Budget.
Gordhan said recently at the World Economic Forum in Davos that even with the gloomy forecasts for gross domestic product (GDP) growth, economic growth for this year could still prove better than most estimates, adding he would provide more detail about his own outlook when he presents his Budget on February 24.
Read: World Bank cuts SA growth forecast
But the World Bank said South Africa’s economy would slow to just 0.8 percent in 2016.
This is the lowest rate of growth since the global financial crisis. It sees growth at 1.1 percent in 2017.
“But the risks to even this lacklustre growth outlook are considerable,” said Catriona Purfield, the World Bank’s programme leader.
The World Bank’s projection is in line with that of the International Monetary Fund, which has cut its forecast from 1.3 percent to 0.7 percent this year.
Growth target
The World Bank report said South Africa’s economy would have to grow by 7.2 percent a year after 2017 to meet the 2030 National Development Plan (NDP) target of more than doubling GDP by 2030, which originally required an average annual growth of 5.4 percent.
“A pickup of this size would be ambitious to achieve in good times, let alone given the outlook of weaker commodity prices and lower Chinese demand,” said the report.
The report said against this backdrop, poverty in South Africa was set to rise as incomes fell, placing the NDP goals of the eradication of extreme poverty, reduction in joblessness and doubling incomes by 2030 further out of reach.
The international lender said South Africa’s growth was weighed down by a combination of external and internal factors.
These include weaker commodity prices, lower Chinese demand and rising US interest rates as well as policy uncertainty, infrastructure gaps and severe drought at home.
Purfield said the drought shaved off 0.2 percentage points from headline growth in 2015, with some effects also being felt in 2016 as a result of the poor planting season.
The report said on the fiscal front, the government walked a fine line. “A weaker growth environment may cause further slippage in the fiscal deficit and delay the government’s goal of stabilising the debt-to-GDP ratio.”
Markets and rating agencies were closely watching the government’s efforts to maintain its (foreign currency denominated) investment grading.
The World Bank said reigniting growth calls for comprehensive reform to encourage new growth drivers.
“In this prevailing weak economic climate, it is important for South Africa to look to other avenues outside the fiscal space to stimulate faster growth,” said the country director for South Africa, Guang Zhe Chen.
The report said in times of weak growth and limited fiscal resources, government policies that promoted greater domestic competition and improved the regulatory environment could lift growth and support poverty alleviation.
The World Bank recommended promoting faster growth and poverty alleviation through effective competition policy.
The report highlighted the cases of two key input sectors – cement and telecommunications – to examine how competition enforcement and an effective regulatory environment can help competitiveness and faster economic growth.
Timely actions by a well-resourced sector regulator and effective policy direction on spectrum licensing would be key in boosting competition and improving market outcomes.
BUSINESS REPORT