Home South Africa News #Budget2019: Tough times ahead with economy

#Budget2019: Tough times ahead with economy

Finance minister Tito Mboweni

The economic picture emerging from Budget 2019 was not a rosy one. Finance Minister Tito Mboweni said in his speech the outlook for South Africa had weakened over the past couple of months, and many of the risks that were warned about in the Mini Budget in October had materialised.

Forecasts

The estimate on gross domestic product (GDP) growth for last year stays at 0.7%, but the Budget Review shows lower forecasts for 2019 (1.5% against 1.8% in February 2018) and 2020 (1.7% against 2.1%). Growth of 2.1% is forecast for 2021.

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Mboweni said that, due to SA being a small open economy, “we were impacted by events in the global economy. World growth is now expected to slow, constraining South Africa’s export growth forecast”.

Finance minister Tito Mboweni

Investment

The Budget Review states that investment remains subdued. Investment fell by 0.3% year-on-year in the first three quarters of 2018, following a 0.7% expansion in the same period in 2017. Investment by private businesses and general government declined.

“As a percentage of GDP, investment has persistently declined, reaching a 13-year low of 17.7% in the third quarter of 2018. The combination of low growth in employment, investment and productivity continues to restrain economic growth,” the review says.

Hope is nevertheless expressed that investment growth will gradually increase as business confidence slowly improves, worn-out capital is replaced and the state improves its ability to execute capital projects.

However, concerns about electricity supply and slower global growth pose risks to the near-term outlook.

Inflation

It is stated that, despite the weaker nominal exchange rate, South Africa’s inflation remains higher than that of its trading partners. Headline inflation slowed from 5.3% in 2017 to 4.7%t in 2018, as lower food and services inflation offset high petrol inflation in the second half of the year.

Fuel inflation, however, rose to 20.1% in the second half of 2018 due to higher oil prices, putting upward pressure on public transport and freight costs. As a result of these large fuel price increases, the Department of Energy is reviewing the basic fuel price formula.

Consumer Price Index (CPI) inflation is expected to reach 5.2% in 2019 in response to rising food inflation associated with higher fuel and agricultural input prices.

Electricity inflation is also expected to increase. The National Treasury assumes an annual adjustment of 10% in electricity prices in each of the next three years, effective from July 2019.

The Budget Review is quite open about job creation, admitting that “the labour market obstructs easy entry into employment, particularly for young people”.

It states that private-sector employment growth has been slowing since 2011. Job creation remains stagnant. The unemployment rate declined marginally from an average of 27.5% in 2017 to 27.1% in 2018.

However, this is largely the result of a 16.8% growth in the number of discouraged work seekers, who are not counted in the unemployment rate”, the Review reads.

Source: News24