Wednesday, 22 February 2017 19:11

GDP to average 1.3% in 2017, SA needs to boost investment

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South Africans can expect growth of 1.3% in 2017, which is expected to improve moderately to over 2% in the medium term, Finance Minister Pravin Gordhan said on Wednesday.

Lesetja_Kganyago_SARB_Governor

In its 2017 Budget Review, National Treasury forecasts a Gross Domestic Product (GDP) growth of 1.3% in 2017, 2% in 2018 and 2.2% in 2019.

“We expect somewhat higher growth in the coming year on the strength of a number of favourable trends [like] commodity prices have rebounded and the exchange rate has recovered from its rapid depreciation last year, which bodes well for capital flows, inflation and business and consumer confidence,” Minister Gordhan said as he tabled the Budget in Parliament.

The 2017 Budget was tabled before a joint sitting of the two houses of Parliament namely the National Assembly and National Council of Provinces.

Last year, the services sector was the main contributor to growth in 2016, bringing nearly 120 000 new work opportunities.

Mining continued to underperform, while manufacturing output was supported by buoyant sales in petrochemicals, food and beverages and motor vehicles. Mining and manufacturing employment declined by 80 000 jobs in 2016.

Higher growth could also be expected due to the drought conditions having abated in most parts of the country.

In addition, production stoppages associated with industrial disputes have been comparatively low and that electricity supply has improved, allowing new connections and industrial demand to be accommodated.

The positive trajectory marks a break with several years of declining growth however the projected rate of growth is not high enough to markedly reduce unemployment, poverty and inequality.

Growth and unemployment

However, Minister Gordhan warned that the projected rate of growth is not sufficient to reduce unemployment or impact significantly on poverty and inequality.

“It falls well short of our National Development Plan (NDP) goals. Madam Speaker, we know what to do to get ourselves out of the present low growth trap. Ditau ge di shumishana di ka bolaya nare.” [If lions work as a team they will bring down even a buffalo.],” he told Parliament.

Government noted that inclusive growth requires broad-based transformation to break down structural impediments to new economic activities, enable millions of black South Africans to generate income and accumulate capital, and raise per capital incomes across the board, said Treasury in its 2017 Budget Review.

“What South Africa needs to do is to bolster business and consumer confidence to support higher levels of investment. By improving policy certainty, safeguarding investment-grade credit ratings, and ensuring that the state meets its regulatory and service-delivery obligations,” noted the review.

Finalising legislation relating to mining development and land redistribution and implementing the transition from analogue to digital television, which will release spectrum for broadband services are some of the ways that South Africa can boost investment in the short term.

He added that continuing the independent power producer programme, both in renewables and to take advantage of gas investment opportunities will also boost investment among others.

Support for small businesses to flourish is also key to boosting investment.

Meanwhile, headline inflation is projected to remain above 6% in 2017 and to decline to 5.7% in 2018. The main contributor to declining inflation over the medium term is lower food price inflation, said Treasury.

Last month, Reserve Bank Governor Lesetja Kganyago announced that the repo rate will remain unchanged at 7%.

In announcing the decision, Kganyago said the Monetary Policy Committee remains concerned that the longer-term inflation trajectory continues to be uncomfortably close to the upper end of the target range.

Risks to growth

Treasury said the primary risk to the outlook is a combination of higher global uncertainty, and the persistence of unresolved policy issues in areas such as mining, land and broadband.

In addition, a weakening of the world trading system and a deterioration in the domestic policy environment would likely translate into lower economic growth, higher risk premiums, declining business and consumer confidence, reduced exports and greater capital flow volatility. 

Last modified on Wednesday, 22 February 2017 19:24

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