JOHANNESBURG – The Organisation for Economic Co-operation and Development (OECD) has labelled South Africa’s economy the worst performer among its peers, making Finance Minister Nhlanhla Nene’s balancing act in the Medium Term Budget Policy Statement even more difficult.
The OECD’s latest report found that gross domestic product (GDP) in South Africa was the lowest among countries in the G20 area by the end of the second quarter. The report said the country was also the only one that was in a recession among the more than 30 economies the organisation tracks.
“Year-on-year GDP growth for the G20 area remained stable at 3.9 percent in the second quarter of 2018, with India recording the highest growth of 8percent and South Africa the lowest at 0.5 percent,” the OECD said.
Nene has already warned that the recession would impact negatively on the government’s fiscal targets.
The SA Revenue Service has also flagged that it was on a hunt to fill the R50 billion Budget shortfall announced in February.
Yolanda Naudé, a portfolio manager at Citadel, said the government needed to address policies such as the mining charter and property rights to bring back confidence into the economy. “If these policies are addressed and properly implemented, we could still see economic growth of between 1 and 2percent next year, and perhaps even 3 or 4percent per year within the next five to 10 years,” Naudé said.
The disappointing economic growth figures and a sharply weaker currency have given South Africa a sharp reality check on the economy.
The rand, which rallied to about R11.55 to the dollar in late February following former president Jacob Zuma’s resignation, has since weakened significantly, putting pressure on the central bank to hike interest rates this week.
The Reserve Bank Monetary Policy Committee meeting, which is expected to conclude tomorrow, will be preceded by the August inflation print today. The South African economy in July recorded a rise of inflation to 5.2percent - the highest inflation rate since September last year.
Investment Strategist at Old Mutual Multi-Managers Izak Odendaal said that given the weak economy and subdued inflation, the real repo rate was higher than the country could afford.
“South Africa’s biggest challenge is the lack of local economic growth, not its dollar liabilities or balance of payments constraint,” he said.
“The lack of growth places huge pressure on the government’s finances and increases the risk of a further credit ratings downgrade.”
– BUSINESS REPORT
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