SA needs more strenuous efforts to break out of ‘low growth trap’

Belinda Bantham -- Thu, 09/06/2018 - 09:28

SA needs more strenuous efforts to break out of ‘low growth trap’

According to renowned economist Prof Raymond Parsons from the North-West University’s (NWU’s) Business School, South Africa will need to make much more strenuous efforts to break out of the ‘low growth trap’ into which a recession has now pushed it.

He says that the extent to which the latest Gross Domestic Product (GDP) figures for the second quarter of 2018 confirm that the South African economy is in a 'technical recession', is bad news for business confidence and employment prospects.

“There are fortunately still several pockets of strength in the economy. But it is clear that South Africa has greatly underestimated the economic damage of the past decade, on how long it will realistically take to turn the economy around, and the negative impact of persistent levels of policy uncertainty.”

Prof Parsons says boosting business and consumer confidence remains a major key if South Africa is to break out of the 'low growth trap' into which the recession has now pushed it.

“Recently President Ramaphosa again rightly reiterated in Beijing that the government needs to provide not just 'policy certainty’ but ‘policy consistency' for investors. The economic situation now badly needs some lines to be drawn in the sand to assert leadership, and minimise uncertainty around key processes like land reform and the mining charter. This is now essential if the official commitment to rebuilding a favourable investment climate is to be concretised and for the economy to move ahead again.”

He says the emergence of an economic recession and lower expected growth prospects this year also have negative implications for the Medium Term Budget Policy Statement due next month, through their likely impact on tax revenues.

“There must be no renewed lapses in fiscal consolidation. These growth and fiscal developments will be critically monitored by the credit rating agencies when they again reassess South Africa's investment rating towards the end of 2018. When the Monetary Policy Committee (MPC) meets later this month it will need to leave interest rates unchanged again in view of the weak economy, just as the MPC had to presciently cut its 2018 growth forecast from 1,7% to 1,2% at its July meeting.”

According to Prof Parsons the initial positive response to recent political changes has now evaporated but must be replaced by a realistic grasp of what is needed to build a bigger, stronger and better economy. He says the latest growth figures and the present economic outlook, therefore, put the forthcoming investment summit into sharper focus as one platform that could be used to change economic perceptions for the better.

“If South Africa is to recalibrate its messages to investors, participants at the summit will have to speak frankly, and there must be more visible collaboration from key stakeholders on what has to be done. This will require forging greater consensus among major decision makers in the economy on how to break out of the 'low growth trap' in which the country now finds itself and to reach a higher growth trajectory.”