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SA’s medium-term economic forecast remains sluggish and uneven

Finance Minister Enoch Godongwana yesterday warned that the pace of economic recovery could slow, as risks beyond anyone’s control threaten to topple the current rebound. Photo: File

Finance Minister Enoch Godongwana yesterday warned that the pace of economic recovery could slow, as risks beyond anyone’s control threaten to topple the current rebound. Photo: File

Published Feb 24, 2022

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SOUTH Africa’s economic growth could potentially weather the Covid-19 storm and recover back to pre-pandemic levels this year, but medium-term forecasts remain sluggish below levels required to spark a jobs and investment renaissance.

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Graph: Supplied

Finance Minister Enoch Godongwana yesterday warned that the pace of economic recovery could slow, as risks beyond anyone’s control threaten to topple the current rebound.

Tabling his maiden Budget speech, Godongwana said the country’s recovery would remain on shaky ground for the next three years as the elevated global and domestic risks rate have eclipsed the economic outlook.

“Our economic recovery has been uneven and risks remain high. We must proceed with caution,” Godongwana warned.

“Commodity prices, which have supported our economic recovery, slowed in the second half of 2021,” the minister said.

Global growth estimates have been lowered this year on new restrictions, elevated inflation, monetary policy adjustments in the US, and volatility in China’s troubled real-estate.

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The National Treasury has also followed course and revised downwards its gross domestic product (GDP) growth forecast for 2021 to 4.8 percent from 5.1 percent it estimated in November.

Godongwana said the downwards revision reflected, among others, a sharp third-quarter contraction driven by a new wave of Covid-19, the July civil unrest, a month-long industrial action in the manufacturing sector and heightened global uncertainty.

“This revision reflects a combination of the impact of changes in the global environment, along with our own unique challenges,” he said.

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Inflation is proving more persistent than expected, particularly in the US, as a result of disruptions to global supply chains and rising energy costs.

In South Africa, headline inflation is projected at 4.8 percent in 2022 and 4.4 percent in 2023 driven by food and energy prices, especially municipal rates from rising electricity prices.

Godongwana said the emergence of new Covid-19 variants, continued load shedding, and rising inflation all presented significant risks to the economic outlook. He said that faster-than-expected global interest rates increases would also have negative consequences for the economy.

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For 2022, the National Treasury projected real economic growth of 2.1 percent, improving slightly from 1.8 percent estimated in November.

“We do not aspire to be below 2 percent growth for the economy. We are capable of so much more,” Godongwana said.

“In this regard, we are refining proposals for an expanded reform agenda – to shift our economy towards a higher growth trajectory.”

However, growth was projected to moderate at a marginally higher rate than projected in November in the medium term and average 1.8 percent over the next three years.

Godongwana punted the government’s previously announced economic reforms, saying though they were being implemented unevenly, they would ease investor concerns, support a faster recovery and higher levels of growth over the long term.

In a pre-Budget media briefing, Deputy Finance Minister David Masondo defended the muted growth forecast, saying the economy had not been growing since the pandemic.

Masondo cited structural reforms such as expanding the threshold of embedded electricity generation to 100MW, and allowing access for private operators into Transnet’s network infrastructure.

“Private investment has not been increasing because of unreliable electricity supply, and poor network infrastructure,” Masondo said.

“We think that in order to unlock private investment, we have to deal seriously with structural reforms …

“These reforms are just to change the structure of certain monopolies and allow competition; we are not necessarily spending any money to implement them,” he said.

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