National Treasury lowers 2019, 2020 economic growth forecasts

The institution brings its growth forecasts in line with private-sector expectations.
Treasury cited policy uncertainty, the slow implementation of structural reforms, an increasingly depressed business environment and a worsening global economy for its 2019 and 2020 economic growth downgrade. Image: Reuters

National Treasury has joined a chorus of private-sector institutions and major credit rating agencies that have lowered their economic growth expectations for 2019 and 2020, signalling that SA’s economy is deep in the doldrums.

Although official figures for SA’s economic growth in 2019 have not been published, Treasury officials have downgraded their forecast for the year to 0.3% from the 0.5% that it proffered during the Medium-Term Budget Policy Statement in October 2019.

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Market watchers expect that the economy may have managed growth of only 0.4% in 2019, and perhaps not even that due to sustained load shedding, which impacted the productivity of many industries.

The outlook for 2020 is equally bearish, as Treasury expects economic growth to falter to 0.9% from earlier expectations of 1.2%, which is in line with the expectations of credit rating agency Moody’s Investor Services, the only one of the three major credit rating agencies to not already have downgraded SA to junk. Moody’s is expected to publish its next credit rating review of SA towards the end of March.

Other credit rating agencies S&P Global Ratings and Fitch, which both downgraded SA to junk in 2017, also expect economic growth to be less than 1% in 2020.

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Arguably, the downgrade in economic growth by the Treasury and credit rating agencies is a blight on President Cyril Ramaphosa’s reform agenda that seeks to revive the economy, reverse structural impediments to growth and create jobs. Economists and researchers have argued that the economy must grow by 3% in order to make a dent on SA’s unemployment rate of 29.1%, which was recorded in the fourth quarter of 2019.

Treasury cited policy uncertainty, the slow implementation of structural reforms, an increasingly depressed business environment and a worsening global economy for its 2019 and 2020 economic growth downgrade.

It also identified Eskom as one of the main drivers stunting economic growth in SA. Eskom, which supplies over 90% of the nation’s power, is battling to keep the lights on due to its dire financial position, with insufficient revenue to service its R450-billion debt load and tariffs that do not allow it to recover all costs.

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To achieve faster economic growth, Treasury said the country requires structural reforms in a number of areas. “Most urgently, the regulatory path should be cleared to enable the private sector to generate electricity, contributing both financial and technical capacity to the country’s energy needs. In other areas, cumbersome and unpredictable regulatory frameworks are undermining private investment,” Treasury said in the 2020 budget review policy document.

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To turn the SA ship around, Treasury’s hopes are underpinned by a strategic document on structural reforms that was produced by the institution and Finance Minister Tito Mboweni. The document proposes wide-ranging interventions in the economy such as, among others, loosening onerous visa regulations, releasing spectrum and opening up SA’s energy mix to include renewable energy.

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