South Africa

South Africa - Economic forecast summary (June 2016)

 

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Drought and electricity constraints slowed economic growth in 2015, and tighter financial conditions and low confidence will weaken it further in 2016. Investment will grow modestly, deterred by continuing lack of electricity and an uncertain policy environment. Growth will broaden and pick up again in 2017 once new electricity capacity comes on stream.

South Africa is experiencing a difficult monetary policy environment, with high inflation and weak growth. Inflation is partly driven by temporary factors, mainly rising food prices and the pass-through of past currency depreciation, but there are risks of second-round effects to restore margins and real wages. Monetary policy should remain ready to act to ensure that inflation expectations do not become anchored above the target band of the Reserve Bank. Fiscal policy needs to earn credibility by sticking to announced consolidation and prioritising growth-enhancing spending. The cost of fiscal consolidation would be greatly offset if long overdue structural reforms would be finally implemented.

Labour productivity has trended down since 2011. Structural reforms are needed to boost productivity and employment to raise incomes and living standards. Ensuring more market competition, in particular in network sectors, strengthening the management and investments of state-owned enterprises, encouraging the development of SMEs by reducing red tape and access barriers and improving the education system are all key measures to boost productivity and inclusion.

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