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Bolder implementation of economic reform announcements is needed to lift confidence in South Africa’s economy, writes Natale Labia.
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The coronavirus pandemic has been, undeniably, a social and economic nightmare for the entire planet. However perhaps for the first time this year, there is some reason to feel a little optimistic about the future of South Africa and the economy.
First, the news on vaccines is remarkably positive, with the UK aiming to start a targeted vaccination program next week and the EU by January. Then, it is apparent that the economic impact of lockdowns has not been as cataclysmic as previously feared. And finally, soon there will even be a rational human being in the White House.
The OECD global economic report released this week is cautiously hopeful. In June, the Paris-based organisation forecasted global GDP growth contraction in excess of 5%. Now, this has been revised to a contraction of ‘only’ 4.2%. This is still the worst year for the global economy ever, even worse than the Great Depression. They are optimistic that the rebound will be just as rapid, with a bounce-back of 4.2% in 2021.
This will however be far from even. The share of GDP of the US and the EU in the world will never be what it was. Growth will increasingly be driven by the Asian powerhouses – China, remarkably, is forecast to grow in 2020. Emerging markets, especially those dependent on tourism, will suffer disproportionally. So will those that were already highly indebted going into this crisis.
Within countries inequalities will also be worse. The global elite have seen their shareholdings in Amazon and Tesla skyrocket this year, while the poor have fewer jobs and welfare benefits than ever.
The World Bank estimates that between 88m to 115m more people will have been pushed into poverty this year than before. That is almost twice the entire population of South Africa. As is written in the book of Matthew: ‘from him who has not, even what he has will be taken away’.
However, in South Africa too there might be some reason for short term optimism. After a contraction of 8.1% this year, growth is forecasted to return in 2021. Inflation will remain subdued, allowing the SA Reserve Bank to keep interest rates low.
Despite a resurgence in Covid 19 infections in parts of the country, prices for South Africa’s main resource exports have remained high. Finally, savings rates – which have been declining consistently for years – increased 0.1% in July. This bodes well for spending during the festive season.
However, warns the OECD, the longer term outlook for South Africa is grim. Extremely high unemployment will hamper our growth and investment prospects due to a lack of confidence in the economy.
For growth to continue bold fiscal measures are necessary to curb public debt increases. Freezing public service wages and restructuring state-owned enterprises are critical to limit government spending increases. Bolder implementation of government economic reform announcements is needed to lift the confidence of households and businesses.
If this happens, the future could be perhaps mostly the same, but maybe a little bit better.
We can but hope.