The OECD said escalating trade conflicts were taking an increasing toll on confidence and investment on the global economy. Photo: Pixabay

JOHANNESBURG – The Organisation for Economic Co-operation and Development (OECD) has slashed South Africa’s growth forecast more than half to 0.5 percent for this year from the 1.2 percent it projected in May.

The OECD said escalating trade conflicts were taking an increasing toll on confidence and investment on the global economy.

It said that the global economy was projected to grow 2.9 percent in 2019 and 3 percent in 2020 – the weakest annual growth rates since the financial crisis, with downside risks continuing to mount.

In its latest global economic outlook released yesterday, the OECD said South Africa's gross domestic product would also decline to 1 percent in 2020 from 1.7 percent.

The global policy forum said risks remain that US-China trade tensions will intensify and spill into new areas, further disrupting supply networks, reducing and distorting trade, and weighing on confidence, growth and jobs.

The US and China are South Africa's major trading partners.

“Weak global trade, lower metals prices and declining new orders are hampering exports and business investment, but low inflation and monetary policy easing should help support household spending,” OECD said.

The OECD also raised concerns about South Africa's debt levels, saying that the government's fiscal deficit was 
set to increase slightly from its 2018 level. 

It said improving the management and governance of state-owned enterprises (SOEs) and strengthening the regulation of network sectors was crucial to lift supply-side bottlenecks.

The OECD recommended removing barriers to competition and lifting regulatory restrictions in many sectors to boost growth.

“In particular, more competition in network industries would bring down prices, increase the accessibility of services, stimulate downstream firms’ competitiveness and raise productivity growth,” it said. 

“Improving infrastructure and reducing intra-regional trade barriers would facilitate the flow of goods and people, increase market access and support economic growth and well-being.”

It also said fiscal policy has to focus on increasing spending efficiency to reduce high government debt and to contain the wage bill. 

“Despite important efforts to prevent a deterioration of the primary balance, increasing interest payments are weighing on debt and fiscal space,” the OECD said.

“High government exposure to under-performing SOEs is threatening debt sustainability. Reforms have been launched to improve the governance of key SOEs.”