JOHANNESBURG - The World Bank yesterday bucked the trend on South Africa's growth projection, saying that the economy would grow by a modest 1.4percent as prevailing optimism had not yet translated into investments.

The Washington-based lender said it expected the gross domestic product (GDP) to grow 1.8percent next year and 1.9percent in 2020. The bank's previous estimates were 1.1percent growth for this year and 1.7percent for 2019.

World Bank senior economist Marek Hanusch said while South Africa’s economic outlook had improved, the country remained trapped in slow growth and high inequality.

“A credible path to sustainably redress inequalities is needed to reduce policy uncertainty and strengthen the social compact on which authorities plan to build consensus with business, labour and civil society,” Hanusch said.

“Decisive structural reforms could shift the forecasted growth trajectory, bringing potential growth to above 2percent in the medium term.”

The bank also cited the country's financial services as a sector that would drive growth. It said an amicable resolution on the contentious mining charter may increase investments in the sector by 25percent.

Last month, the SA Reserve Bank said it expected the economy to grow at 1.7percent for 2018 from a previous projection of 1.4percent previously, 1.5percent next year and 2percent in 2020.

Forecast

Ratings agency S&P, however, said South Africa would reach a growth of 2percent much sooner. S&P last month lifted its GDP growth forecast for South Africa to 2percent for 2018, from 1percent previously, and to 2.1percent for 2019, from 1.7percent.

Annabel Bishop, chief economist at Investec, said for South Africa free market policies are key.

“Key is the strengthening of South Africa's institutions and state structures to high levels of soundness, tripling the size of the private corporate sector and substantially raising private sector fixed investment, including reindustrialisation,” Bishop said.

The World Bank said improved business and consumer sentiment could herald the return of investment that the country needs to make its firms more competitive. The bank also said inequality in South Africa in 2030 will be back down to its 1994 level due to increased access to education.

Old Mutual head of economic research Johann Els said he expected growth to reach 2percent in the medium term.

“While 2018 is shaping up to be one of the strongest years seen over the past five years, with growth potentially reaching 2.3percent it remains part of a cyclical upswing, which needs to be converted to strong structural growth through policy reforms,” Els said.

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- BUSINESS REPORT ONLINE