Finance minister Tito Mboweni presents his 2019 budget speech in parliament, Cape Town, on February 20 2019. Picture: GCIS/ELMOND JIYANE
Finance minister Tito Mboweni presents his 2019 budget speech in parliament, Cape Town, on February 20 2019. Picture: GCIS/ELMOND JIYANE

Growth will disappoint again in 2019 — with little hope for a turnaround in the medium term.

The Treasury has revised down its growth forecast for 2019 from 1.7% to 1.5%. Growth is expected to increase to 2.1% by 2021.

“Many of the risks that we warned about [in October] have materialised,” finance minister Tito Mboweni said. “We have slower growth but it is still within the forecast framework we’ve put in place,” he said.

These forecasts are slightly below the SA Reserve Bank’s latest expectations of growth of 1.7% in 2019, increasing to 2.2% in 2021. “The revisions take into account weaker investment outcomes in 2018, a more fragile recovery in household income, and slower export demand than expected due to moderating global growth,” the Treasury said.

This is double the expected growth for 2018 of 0.7%, after the economy entered a recession in the first half of that year. However, SA has clearly strayed further from the goals set out in the national development plan (NDP), which calls for economic growth of 5.4% per year and a lowering of the unemployment rate to 12% by 2030.

While President Cyril Ramaphosa has said growth of 5% is possible with the right reforms, this looks increasingly unlikely. Realistically, SA would need this level of sustained growth to make a meaningful dent in unemployment, which is nearing the 30% mark.

“The current policy outlined in the NDP was formulated in a period of high-growth optimism,” Wits economics professor and former head of the budget office Michael Sachs said on Monday.

“Successive policy statements have downgraded the medium-term growth forecast. Lower than expected growth is based on lower than projected revenue. We seem to have hit rock bottom, but it is not automatic that growth will return,” he said.

SA’s economy fell into recession in the second quarter of 2018 and has not expanded more than 2% annually since 2013.

Early indicators show that growth remained soft at the start of 2019. Since the delivery of the medium-term budget policy statement (MTBPS) in 2018, global economic growth momentum has increasingly shown signs of a moderation, with slower growth in China and the US. This is an unfavourable background for growth in SA.

On the domestic front, the Treasury acknowledged that Eskom posed the biggest risk to growth, while continuous load-shedding, higher electricity prices, prolonged strikes in the mining industry and weather conditions that could hamper the agricultural sector could also weigh on growth.

“2019’s GDP growth forecasts are at risk of downgrade, not least from the threat to the security of supply of electricity in SA,” Investec chief economist Annabel Bishop said.

Econometrix MD Azar Jammine said Eskom’s woes could trigger another recession, particularly as it hit the mining and manufacturing sectors, which are already struggling.

Growth is expected to improve marginally in the medium term due to a moderate improvement in confidence, “more effective” public infrastructure spending and a brighter commodity price outlook. “Following a decade of economic weakness, there are positive signs that the economy has begun to gain lost ground,” the Treasury said.

For most years in the past decade, growth forecasts collected in Reuters polls ahead of the February budget had to be trimmed substantially in the lead-up to October’s MTBPS.

That is in stark contrast to the period from 2001 to the global recession, when for most years growth came in above economists’ projections, making it easier for policy makers to raise revenues.

Mboweni said the growth figures are forecasts based on a set of assumptions, but the Treasury could look at a range of possible outcomes in future budget reviews.

“These South African growth expectations look reasonably pessimistic, and it is not unreasonable to think economic growth could exceed these relatively low expectations in subsequent years, provided the challenges around Eskom can be resolved,” said David Crosoer, head of research and investments at PPS Investments.

Some analysts have pencilled in stronger growth post-election. “This year’s elections are expected to dictate the pace of the recovery over the short-term as Ramaphosa’s last-ditch economic reforms will depend on a mandate for his ANC,” according to FocusEconomics consensus forecast for Sub-Saharan Africa.

“Higher real wages and new business-friendly prescriptions, meanwhile, are expected to lift economic sentiment and stoke household spending and fixed investment, respectively,” the report said.

Correction: February 21 2019

This article initially incorrectly stated that the Reserve Bank’s latest expectations of growth would grow to 2.2% in 2019. This was in fact the figure the Bank is expecting in 2021.