Treasury cuts economic growth estimate to 0.5%

Pretoria  –  National Treasury has revised South Africa’s growth forecast for 2016 from 0.9% to 0.5% as part of its medium-term budget.

Treasury said it further expects a moderate recovery over the next three years, with gross domestic product growth reaching 2.2% in 2019 amid less binding supply-side constraints, a recovery in the global economy and renewed business and consumer confidence.

“Growth is expected to increase to 2.2% by 2019, supported by more reliable electricity supply, improved labour relations, low inflation, a recovery in business and consumer confidence, stabilising commodity prices and stronger global growth,” said Treasury.

“Decisive measures to speed implementation of NDP (National Development Plan) reforms and reduce policy uncertainty can support accelerated and broad-based economic growth,” said Treasury.

However, current local growth constraints need to be overcome for the country to start setting its sights on 2.2% growth in 2019, Treasury explained.

“While global economic weakness plays a large role in South Africa’s economic growth performance, domestic constraints stand in the way of investment, output and trade. The slow pace of finalising policy interventions in areas such as land reform, immigration, labour relations, mining and communications undermines confidence, which is a key determinant of economic activity,” said Treasury in its statement. 

“Government must demonstrate more rapid implementation to restore confidence and give hope to citizens,” Treasury added.
But South Africa must further tap its “strong institutions, stable macroeconomic environment, well-developed financial markets, relatively high levels of innovation capacity and strategic position in the region provide a solid platform for stronger growth”.

At a press briefing in Cape Town, Finance Minister Pravin Gordhan said that while South Africa is grappling with low or no growth, there are “green shoots” in the economy.

“The economic environment is a challenging one but not impossible,” he said at the briefing. 

“We are not in hopeless situation – it (growth) could get to 1.7% next year,” he added.

Gordhan said that trade-offs, such as reducing South Africa’s public wage bill, would need to be met in a bid to reignite the economy. 

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