WORST EVER PREDICTION FOR SOUTH AFRICAN ECONOMY: EVEN IMF DOES NOT BELIEVE IN SA – My Comments

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[In all my years of reading news and posting information, this is definitely the worst prediction for the South African economy – EVER. The Liberals and Liberals outside of South Africa are ALWAYS making big positive predictions about South Africa's economy. But this is the first time I've seen predictions of 1% growth. And this comes from the IMF. So even they, who are always positive, don't believe in South Africa's economy. Now a real twist for South Africa is that the People have babies like crazy and they NEED JOBS for their kids. However, this is ONLY POSSIBLE if the economy GROWS. So, the economy slowing down like this means there will be a LOT of future People who won't have jobs. This will definitely strain the country in a big way. This can lead even to racial stresses as People claim they need more from People. It looks as if South Africa is coming to the end of the line and the IMF is predicting even worse things in 2023!! As for me, I'm happy. The ship must be sunk so that we can move to the next level. The person who wrote this is a Person economist. Jan]

SA economy at a juncture

Budget will be critical.

11 Feb 2022 00:01

South Africa’s economy is teetering on a fiscal cliff, with a number of major risks looming on the horizon that could quickly derail any foreseeable growth.

I recently gave an update on the local and global economy at a webinar hosted by Allan Gray. The webinar was held against the backdrop of the State of the Nation Address (Sona) delivered on Thursday evening (February 10), as well as the Budget Speech to be delivered by the Finance Minister later this month.

The next budget will be critical for our country, especially given that the average growth for the next 10 years for SA is forecast to be below 1%, which is going to be a major problem.

In the last month the International Monetary Fund (IMF) cut SA’s growth forecast for 2022 to 1.9%, this is down from its October forecast of 2.2%. The IMF expects growth to further slow to 1.4% in 2023.

Electricity supply constraints still present a major risk to economic growth. Eskom has a poor funding model given that it essentially relies on tariff increases from the National Energy Regulator of South Africa (Nersa) and Nersa recently rejected Eskom’s tariff application, putting the utility in a financially precarious position. However, it is positive news that the President committed to transitioning Eskom at the recently held COP26.

SA urgently needs to adopt economic reforms to turn things around, but the country is facing several headwinds all of which are making growth unlikely.

The lack of economic reform is scary. We should be making our cities work and getting our rail system functioning so that cheap transport can be more accessible. This will see more people going to the cities to find jobs. Instead, our solution is short-term and a quick fix in the form of extending social grants into perpetuity.

In FY24/25, the country’s debt service costs will be the second-highest expenditure item after education. This cuts out opportunities to grow the economy.

Another tension point is the fact that we are in a rising interest rate environment. Over-tightening interest rates will slow economic growth, so our Reserve Bank must be cautious with how they control interest rates to avoid slowing growth.

Global risks to SA

Turning to the global economy there are several risks that could impact SA, most notably inflation.

At 7%, inflation is at historic highs in the US. This trend is the same for most developed economies and this is being driven by supply constraints brought on by the pandemic. However, inflation in emerging market economies is not rising as quickly, given that the knock-on impact of the pandemic on supply chains in these markets is not as severe yet, especially in SA.

Investors are shunning emerging markets as they become risk averse, which means that flows into emerging markets, including South Africa, are cooling down.

Another risk is slowing growth in China. Although we are currently seeing a strong Asian recovery, if China spirals it will have an economic impact on South Africa.

But SA’s problems aren’t insurmountable and there are some easy wins: There is lots to do at the margins. We need to make it easier to do business. We need to support small business and incentivise corporates that are doing well to employ more people. We need to release spectrum and bring down internet prices. And we need more partnerships between the public and private sector.

Source: https://www.moneyweb.co.za/news/economy/sa-economy-at-a-juncture/

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