Economic forecast
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Figure 2: Oil price since the start of the year (US$/barrel) 85
80 75 70 65 60 01-Jan-18 01-Feb-18 01-Mar-18 01-Apr-18 01-May-18 Source: Reuters
The higher business and consumer confidence, along with the increased policy certainty brought by the change in political leadership, is encouraging for the private-sector fixed- investment outlook. This marks a change in investment growth impetus. For the past few years, investment outlays have largely been underpinned by public-sector infrastructure spending, while growth in private-sector investment was lacklustre. Improved private- sector capex growth is likely to be an important domestic growth driver over the medium term.
Along with the more optimistic view of private- sector fixed investment, higher consumer spending is also on the cards. The drivers of consumer income (higher employment, real wages and greater access to credit) are set to be more favourable over the next five years or so.
In contrast, growth in government consumption is set to slow as fiscal consolidation efforts – aimed at reducing (or at least stabilising) the fiscal deficit and government debt levels – take shape. Again, this highlights the private-sector role in lifting or contributing to growth amid a declining state contribution.
However, for all the renewed optimism, there are also some downside risks to the baseline forecast. These include the question of how the ANC manages the heated debate around land (in
a broad sense) and, in particular, the talk about expropriation without compensation. Despite a new leadership, factional battles within the ruling party may continue to stifle progress. The weak balance sheets of state-owned enterprises, especially Eskom, also remain a major risk. Recent reports that South African Airways requires another R5 billion bail-out from government is a case in point.
More recent risks include the sharp weakening in the rand-US dollar exchange rate over the past month or so, admittedly due primarily to US dollar strength because of intensifying expectations of more aggressive monetary policy tightening than previously thought. Adding to this is a global oil price which has edged above US$80 per barrel (in the week ending 18 May) for the
first time since 2014. If sustained, this will result in higher imported inflation than predicted. The domestic petrol price has already increased sharply in recent months, reflecting the impact of the higher oil price and softer rand exchange rate.
Overall, growth in the medium term (2018-2023) is expected to average 2.4% (see Table 1). This is higher than the average of 1.6% for the previous five years and represents a 0.6 percentage point increase on our previous six-year forecast.
. Table 1: BER forecast for selected variables, April 2018 Consumer spending
Government consumption Fixed investment Real GDE Exports Imports
Real GDP
Average growth (2012-2017) 1.9 1.8 1.7 1.6 2.0 2.0 1.6
Average growth (2018-2023) 2.8 1.1 3.7 2.7 2.9 4.0 2.4
Source: Statistics SA, Bureau for Economic Research
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