Faster growth is expected on the back of a weaker rand and a pick-up in world trade. Domestic demand is being held back by low consumer confidence and weak real income growth. As accelerating exports feed into the domestic economy, growth should become stronger and reach potential towards the end of 2014. Higher exports are projected to narrow the current account deficit. Inflation has risen but is projected to be contained by the large degree of slack in the economy.
The government should accelerate the underlying pace of fiscal consolidation, but allow the automatic stabilisers to work if growth turns out lower than expected. The Reserve Bank should explore room for easing, as the slack in the economy and fiscal tightening should contain inflationary pressures, while guarding against the possibility of the recent spike in inflation feeding into inflation expectations. Structural reform to tackle the insider/outsider divide on the labour market, together with a reduction of the sizeable rents in product markets, would secure a higher pace of durable job creation as well as a faster supply response to sector specific-capacity constraints.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.
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