Slow growth persists for South Africa’s economy - CNBC Africa

Slow growth persists for South Africa’s economy

Southern Africa

by Thabile Manala 0

The South African economy is expected to grow by 1.5 per cent in 2015. Photo: Flickr

The South African economy is expected to grow by 1.5 per cent in 2015 following a global economic recovery that has been weaker than anticipated.

Subsequent to the February 2015 Budget, the economy has grown more slowly than the originally projected 2 per cent. This comes as electricity constraints have limited output; general business investment has plummeted as well as lower commodity prices and subdued domestic demand.

The global economic volatility has resulted in weaker confidence at home and weighed significantly on trade consumption and investment.

A National Treasury Official cited that the interplay of the slowed growth in China and higher interest rates in the United States have created a difficult environment for developing countries such as South Africa – a country with low domestic savings and a reliance on foreign capital to fund investment.

Consumer Price Index (CPI) inflation eased to 4.5 per cent over the first eight months of 2015, from 6.1 per cent in 2014, largely as a result of lower petrol prices. Inflation has remained between the 3 to 6 per cent target band, said the official.

Fellow BRICS countries, Brazil and Russia, are lying in negative territory with an anticipated GDP growth of -3.0 and -1.0 in 2015 and 2016, respectively for Brazil, and -3.8 and -0.6 for Russia. This was according to the International Monetary Fund (IMF) World Economic Outlook October, 2015.

Economic growth in developed economies is expected to rise gradually. In contrast however, lower commodity prices, weaker domestic demand, tighter financial conditions and slower capital inflows have restricted growth in developing economies.

Growth in sub-Saharan Africa is expected to decline to 3.8 per cent in 2015 from 5 per cent in 2014, largely as a result of weaker commodity prices and lower demand from China.

The redeeming factors for South Africa have been the rand depreciation; reduced labour market tensions and improved demand from Europe that has boosted exports. The lower oil price has also provided a cushion for household spending by reducing transport costs.

 The inflation-targeting regime and prudent fiscal framework have supported continued capital inflows, and the flexible exchange rate has buffered the economy from the full impact of global shocks.

However, limited electricity supply weighed heavily on both mining and manufacturing production, and drought reduced agricultural output.

Household consumption grew by 1.6 per cent in the first half of 2015, supported by lower petrol and food prices. However, the overall outlook is subdued, with consumer confidence below its long-term average.

Public-sector infrastructure spending is projected to be over R800 billion over the medium-term expenditure framework (MTEF) period. Government continues to encourage private-sector participation in infrastructure projects such as renewable energy and transport.

Consequent from that plea, private sector investment has boosted R193 billion for 92 projects as part of the Renewable Energy Independent Power Producer Programme.

In consummation, a weak growth outlook is not unique to South Africa. However, strengthened partnerships with the private sector will create a platform for investment, employment and development. 

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