Uncertainty over policy decisions in South Africa is forecast to continue to permeate throughout the economy due to a plausible wide range of 2024 election outcomes on the back of bleak growth in 2023.
These are the findings of the North West University Business School Policy Uncertainty Index (PUI) for the fourth quarter of 2023 which was released yesterday.
Although remaining well in negative territory, the PUI showed a welcome easing to 65.5 in the fourth quarter from 71.8 in the third quarter (baseline 50).
North West University said while negative factors shaping the PUI were still strong enough to keep the index highly elevated, there were enough positive factors to slightly reduce the PUI level in the fourth quarter.
The PUI highlighted that the economic outlook was described by a recent Nedbank survey as ‘bleak’, citing a cumulative combination of well-known global and domestic headwinds towards year end.
It also highlighted the latest FNB/BER consumer confidence index was the lowest festive season reading in more than two decades.
It said various contrary factors, such as escalating job losses and high borrowing costs, have converged to severely dent household spending and credit demand.
North-West University Business School economist Professor Raymond Parsons said that as a result, the presence of elevated policy uncertainty remained, for now, a significant factor in the economic environment for business and consumer decision-making.
Parsons said a better outlook for 2024 will depend largely on the pace at which inflation continues to decline and the extent to which interest rates indeed begin easing later in 2024.
“Looking ahead it is therefore clear that growth expectations in SA remain especially heavily dependent on load shedding being steadily phased out and a higher level of energy security being achieved as promised.
“An additional source of recent policy uncertainty has been the serious deterioration in SA’s public finances during the course of 2023 and which was outlined in the Medium-Term Budget Policy Statement (MTBPS) on November 1.
“Looming over the calibration of policy uncertainty in SA nevertheless are the risks arising from the pending general elections in 2024. SARB Governor Lesetja Kganyago and others have highlighted the elections as among the key risks now facing SA’s economy.”
Last month, Kganyago told a weekend publication that politicians adopting a populist tone ahead of the presidential and legislative vote may create uncertainty among foreign investors, undermining the case for investing in SA.
Parsons said global research has shown that, in many countries, policy uncertainty indices tend to spike when elections were due, and South Africa will not be immune from this trend.
He said that except, though, that there were two key distinctive features that differentiate the possible impact of the 2024 elections on the uncertainty profile of the South African economy.
“Firstly, the prospect of political change or shifts after 30 years of dominance by the ANC governing party opens up several new areas of uncertainty not experienced in SA since the 1994 democratic elections.
“Secondly, the PUI has been highly elevated for some time and has been well in negative territory for an extended period, driven by other well-known domestic and global factors. It remains to be seen how the PUI will respond as SA moves into uncharted political waters in 2024.”
Nonetheless, Parsons said there were a number of reform initiatives already emerging in major policy areas, such as in energy, logistics and transport, that could still become important tailwinds for this year’s growth prospects.
He said the domestic challenge therefore largely remained to expedite the implementation of agreed half-forged policies and projects that could help to further reduce policy uncertainty by ensuring that the tailwinds outweigh the headwinds in 2024.