With an improved economic outlook, South Africa’s Gross Domestic Product (GDP) is projected to come in at 1% in 2018, up from the 0.7% projected last year, Finance Minister Malusi Gigaba said on Wednesday.
“The 2017 GDP growth projection has been revised upward to 1%, which is higher than the 0.7% expected at the time of MTBPS [Medium Term Budget Policy Statement] last year. We are anticipating growth of 1.5% in 2018, rising to 2.1% in 2020,” said the Minister as he tabled the 2018 Budget in the National Assembly.
According to the Budget Review, the improved outlook flows from strong growth in agriculture, higher commodity prices and an incipient recovery in investor sentiment.
Tabling the R1.67 trillion budget, Minister Gigaba said while the forecast has improved, there are policy interventions that need to be made.
“While this is a good start, there are immediate policy interventions that we need to make to ensure that we create the right environment for investment, growth and employment.
“While global risk factors remain elevated, the world economy continues to provide a supportive platform for South Africa to expand trade and investment,” said the Minister, noting that world economic growth is at its highest level since 2014 and continues to gather pace.
Tabling his maiden Budget Speech, Minister Gigaba — who was appointed to the Portfolio following a March 2017 Cabinet reshuffle — admitted that 2017 had been a difficult one for the South African economy.
“It would be remiss of me not to acknowledge that last year was particularly difficult for our economy. The year was characterised by slow economic growth, recession, ratings downgrades, and heightened concerns regarding the governance and sustainability of key state-owned companies.”
“Despite this, the country’s economic growth outlook has improved over the past few months because of strong growth in the primary sector of the economy – particularly agriculture – as well as a welcome recovery in investor sentiment and business confidence. Over the medium term, the growth outlook is higher than projected in last year’s MTBPS,” said the Minister.
He said the cyclical recovery is matched by a renewed sense of optimism that the government can and will do its work effectively.
“This presents an opportunity for us to do the things required to reignite growth and chart a course towards meeting the objectives of the National Development Plan and fulfilling our constitutional obligations,” he said.
While the growth forecast has improved relative to the 2017 MTBPS, there are major risks to the outlook.
Treasury said a sustained GDP recovery depends on extending the current upturn in business confidence and that continued policy and political uncertainty, and further deterioration in the finances of State-owned companies remain the largest risks to the economic outlook.
Other risks identified include 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.
Meanwhile, Treasury projects inflation to come in at 5.3% in 2018.
This as headline inflation declined to 5.3% in 2017 from 6.3% in 2016. Lower inflation is due to lower food and non-alcoholic beverage prices.
“For 2018, headline inflation is projected at 5.3%, which includes 0.6 percentage points added by tax proposals.”
Electricity inflation, which fell from 9.2% in 2016 to 4.7% in 2017, is expected to stabilise at about 3.7% in 2018, following the regulator’s approval of a 5.2% Eskom tariff increase.
Treasury said the main risks to the inflation outlook remain a weaker-than-expected exchange rate, higher global oil prices and higher average wage growth. – SAnews.gov.za