Economic outlook, analysis and forecasts

South Africa - Economic forecast summary (June 2017)

 

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Economic growth is projected to continue to be weak in 2017 before picking up moderately in 2018, as private consumption and exports rise on the back of a recovery in commodity prices and growth in export markets. Unemployment and inequality will remain high, reflecting large skill gaps and low education quality. Inflation has been above target, due to the rand depreciation and rising food prices, but is easing.


Monetary policy has been slightly accommodative since March 2016, which is appropriate as inflation peaks were driven by temporary shocks, such as a severe drought. Continued depreciation of the rand due to ratings downgrades could have second-round impacts on inflation. The Reserve Bank may need to communicate clearly its readiness to act to ensure that inflation expectations remain anchored. A moderate fiscal consolidation to stabilise debt levels should be pursued, while social transfers should be preserved to reduce inequality and poverty. Bold structural reforms are needed to boost growth, especially more competition in network and services sectors, and to improve the education system.


Greater regional integration can boost growth by broadening access to markets and resources. South African firms can benefit from deeper integration, given their better financial resources and advanced technologies, if trade and non-trade barriers are further removed. Globalisation and financial openness have helped deepen financial markets, but have also implied high volatility of the rand and the stock market. This can be contained by further developing prudential rules for financial institutions. Workers in exporting sectors, like mining or banking, have benefited from globalisation with high wages, tending to raise inequality. The government is introducing a national minimum wage which will reduce wage inequality and poverty.

 

EO101 South Africa

 

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Other information

Economic Survey of South Africa (survey page)

 

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