Cape Town - Major risks to a better economic outlook remain, and a sustained recovery in GDP growth depends on extending the current upturn in business confidence.
The budget labelled continued policy and political uncertainty, as well as further deterioration in the finances of state-owned companies, the largest risks to the economic outlook.
- A further downgrade of South Africa’s local-currency debt, resulting in the country’s exclusion from the Citi World Government Bond Index. This would result in higher risk premiums and trigger some capital outflows, leading to an increase in borrowing costs, exchange rate depreciation and further deterioration in economic activity.
- A weaker-than-expected rand exchange rate or higher administrative price inflation (for example, water or electricity price increases). Higher overall inflation would reduce South Africa’s competitiveness and negatively affect trade, and decrease the purchasing power of domestic consumers and businesses.
- A severe contraction in the Western Cape economy due to the water crisis, which would threaten employment in agriculture and tourism. Calculations by National Treasury show that every 1% contraction in the economy of the Western Cape subtracts 0.2 percentage points from overall growth.
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