Effect of stimulus will be limited, says World Bank
The World Bank has warned that President Cyril Ramaphosa’s economic stimulus plan will have a limited effect as the bank revised down the country’s growth forecasts.
In its regional economic outlook released on Tuesday, the bank said economic growth would remain subdued by high unemployment and slow growth in credit extension to households, which have constrained domestic demand.
While the forecasts are higher than that of the Reserve Bank, the World Bank now expects growth of 1.0% in 2018, from 1.4%. The economy has struggled to breach the 2% mark since 2013, while unemployment has edged closer to 30%.
President Cyril Ramaphosa announced an economic stimulus plan in September, after weak activity in the primary sectors saw SA enter a recession for the first time since the global financial crisis.
"The economic effect of the stimulus plan is likely to be limited, as it mostly consists of already committed public spending. However, planned reforms — including on mining regulation and utility pricing — will improve the business environment and encourage investment," the bank said.
The plan encompasses growth-enhancing reforms, reprioritising public spending to create jobs, setting up an infrastructure fund, improving education and health, and investing in municipal social infrastructure.
"Unless Ramaphosa’s stimulus package quickly kick-starts the economy on to a substantially higher growth path, with a much stronger pace of job creation, household incomes will remain under pressure," said Absa senior economist Peter Worthington.
Ahead of the medium-term budget policy statement at the end of this month, Finance Minister Nhlanhla Nene has warned that the National Treasury will probably have to revise down its growth forecast for the year from 1.5%.
The World Bank’s growth forecasts were lowered from 1.8% to 1.3% for 2019, and from 1.9% to 1.7% for 2020.
Despite this, the bank said that growth would pick up in 2020 as the government’s structural-reform agenda gathers speed, helping to boost investment growth, as policy uncertainty recedes.
The Standard Bank purchasing managers index (PMI), which reflects the entire economy, showed private-sector activity remained subdued. This is based on data about new orders, employment and operational costs compiled from purchasing executives in about 400 private-sector companies in the manufacturing, mining, services, construction and retail sectors.
The index, which was also released on Wednesday, showed that domestic business conditions improved slightly in September to 48 after dropping to a 29-month low of 47.2 in August. A score below 50 and indicates a contraction in business conditions.
This is the third successive month of decline.
"The recent improvements in the Mining Charter together with President Ramaphosa’s economic stimulus plan — which includes, among others, plans to reduce cost of doing business — should boost business confidence and investment and economic growth over the medium term," Standard Bank economist Thanda Sithole said.