The Paris-based organisation said in its latest outlook on the global economy released yesterday that the country's gross domestic product (GDP) would also drop to 1.7 percent next year from 2 percent.
OECD said South Africa needed a strategy to increase job creation and growth.
“It should focus on investment in infrastructure and implementation of structural reforms such as strengthening and broadening competition. Developing labour intensive sectors like tourism can further support job creation,” OECD said.
“Investment is projected to pick up progressively, albeit from historically low levels, as a clarification of the reform agenda following the recent general election is expected to support confidence.”
The OECD further flagged increasing interest payments as weighing on debt and fiscal space.
“Fiscal policy has to focus on increasing spending efficiency to reduce high government debt. The government should strengthen its efforts to contain the wage bill.”
The OECD also said high government exposure to under performing state-owned enterprises (SOEs) was threatening debt sustainability and that reforms should focus on implementing an effective governance framework that clearly sets company-specific objectives in terms of profitability, capital structure and non-financial results.
South Africa's unemployment rate surged to 27.6 percent in the first quarter of the year from 27.1 percent in the prior quarter with significant job losses in the construction sector and the finance industry.
Old Mutual Investment chief economist Johann Els said improving confidence was the most urgent need for the economy.
“South Africa is experiencing dismal growth, with a downward trend since the fifties and sixties, aside from a brief uptick post-1994. The past five years have been particularly poor, having performed feebly compared to the rest of the world,” Els said.
“Ultimately, the South Africa environment is looking a lot better over the next three to five years, compared to the last five.”
The country's economy grew by just 0.8 percent last year and has not grown beyond 2 percent since 2013.
First quarter activity data has also indicated that the economy probably contracted in the period after manufacturing and mining output and retail sales all contracted on a quarter on quarter basis.
Virág Fórizs, an emerging markets economist at Capital Economics, said available data suggested that output slumped by 2 percent quarter-on-quarter in the three months to March.
“If the out-turn is indeed this weak, we'll have to cut our 2019 growth forecast from 1.5 percent to about 1 percent,” Fórizs said.