South African Reserve Bank file photo
JOHANNESBURG - The South African Reserve Bank (Sarb) has said that the economy appears to have reached a turning point that could see growth rising faster than initial forecasts.

Sarb’s bi-annual Monetary Policy Review (MPR) released yesterday said its forecasts indicated growth in the medium term but warned that the absence of meaningful reforms would curb it to 2percent.

Sarb governor Lesetja Kganyago said there were abundant reform opportunities that could boost the economy.

He said right policies and structural reforms could reignite the economy.

“This is a good time for South Africans to be ambitious,” Kganyago said. “For the first time in years, I suspect our forecasts lean towards being too pessimistic rather than too optimistic. A better future is within our reach if we choose it.”

The central bank last month reversed its growth forecast upwards to 1.7percent this year from 1.4percent. The bank, however, trimmed its prediction for 2019 to 1.5percent from 1.6percent, and said growth would reach 2percent in 2020.

The World Bank this week also said the country's economy would grow 1.4percent from 1.1percent. The most optimistic forecast thus far has come from rating agency S&P Global Ratings, which put South Africa’s growth for this year at 2percent from 1percent previously.

Finance Minister Nhlanhla Nene has already indicated that the National Treasury was likely to raise its forecast for this from the current 1.5percent in the October medium-term budget policy statement. In the February budget, the ministry said the economy would grow by 1.8percent next year and 2.1percent in 2020.

Capital Economics Africa economist John Ashbourne said structural reform could push growth above the current forecast.

“I would tend to think that above-forecast growth is more likely this year. Indeed, at Capital Economics we expect growth of 2percent in 2018,” Ashbourne said.

The MPR said the change in South Africa's fortunes had been most visible in financial market variables with long-term government bond yields falling back below longer-run averages and credit default swop spreads - a measure of sovereign default risk - declining to eight-year lows.

The exchange rate has also appreciated strongly, reaching a three-year high against the US dollar in February.

Citadel chief economist Maarten Ackerman said growth for 2018 should be better than the February budget projections.

“However, to keep growth elevated and beyond 2018 we will need to address structural issues including low levels of fixed investment; an unproductive public service the barriers to entry in several industries more generally and the associated concentration of power in too few companies,” Ackerman said.

The MPR also said Zimbabwe has gone from being South Africa's fifth-biggest trading partner to twelfth, with output falling from 8percent in 1998 to nearly 4.5percent currently.

“Given its population size and proximity, Zimbabwe's ranking should be higher. Were it to regain fifth place, it would move past India and the UK on the list of South Africa's most important trading partners,” the MPR said.