Unresolved policies, global uncertainty risk harming growth

22 February 2017

Cape Town – Global uncertainty and unresolved mining, land and broadband issues pose the biggest risk to South Africa’s more positive growth outlook, said Finance Minister Pravin Gordhan in his 2017 Budget Review.

A weakening of the world trading system and a deterioration in the domestic policy environment would likely translate into lower economic growth, declining business and consumer confidence, reduced exports and greater capital flow volatility.

“Such a scenario could result in a lengthy period of weak growth (a low growth trap) or a domestic recession, followed by a slow recovery,” Gordhan cautioned.

Rising interest rates in advanced economies, such as the United States, could reduce capital flows into developing economies and expose their vulnerabilities.

In addition, high levels of corporate debt may reduce China’s demand for imports. Weak balance sheets in several advanced and developing countries could negatively affect the financial sector in these economies, reducing lending and economic activity.

“Increased geopolitical tensions could also have a negative impact on market confidence, capital flows and investment.”

On the other hand, a large policy stimulus in the US or China could boost global growth.

Higher global growth, more reliable electricity supply, stable relations and policy certainty that will be constructive for growth could improve business and investor confidence and in turn lead to higher exports, investment and consumption.

In such a scenario, Gordhan said “economic growth in South Africa could exceed 3% by 2019/20”.

This article first appeared on Fin24, see here.