Growth projection revised down to 0.7%

Wednesday, October 25, 2017

Finance Minister Malusi Gigaba says National Treasury has revised economic growth projections downwards to 0.7% for 2017.

The Minister said this not long after the country’s economy slipped out of a technical recession that was brought about by a -0.7% slump in the first quarter of 2017  after dwindling by 0.3% in the final quarter of 2016.

“We have had to revise economic growth projections downwards from 1.3%, as tabled at the time of the budget, to 0.7% for 2017.

“Growth is subsequently expected to increase slowly reaching 1.9% in 2020,” the Minister said.

The Minister said this when he tabled the Medium Term Budget Policy Statement (MTBPS) in the National Assembly on Wednesday.

“Therefore, we have the power to change our course, the political, social and economic agency to chart a new path.”

He said the global environment may be helpful as growth is improving, despite persisting risks.

The International Monetary Fund (IMF) projects that global growth will average 3.6% in 2017 and reach 3.7% in 2018, the Minister said.

“The positive global outlook reflects a recovery in demand and trade in Europe and Asia. World trade volumes are expected to increase by 4.2% in 2017. Low interest rates in the United States, Europe and Japan remain supportive of growth.

“The US will reach its pre-crisis average growth rate of 2.3% next year, which bodes well for global conditions.”

Contributing factors to growth

According to National Treasury, revisions to the forecast reflect a significant deterioration in business and consumer confidence over the past year.

Other contributing factors, National Treasury said, include weaker-than-anticipated growth in the fourth quarter of 2016, a large contraction in the finance sector in the first quarter of 2017 and a higher risk premium, reflected in higher bond yields.

“The impact of domestic factors on economic growth has been partially offset by improved global growth and commodity prices. Growth in household spending increased marginally to 1.1% in the first half of the year from 0.6% over the same period of 2016,” Treasury said.

Expenditure on durable goods, such as vehicles and washing machines, contracted during the first half of 2017.  A 2.1% contraction in real household disposable income in the first quarter was followed by growth of 4.5% in the second, supported by rising real wages.

“Nominal year-on-year growth in employee compensation was 7% in the second quarter, with strong increases in general government services. High debt levels continue to constrain household spending. The ratio of household debt to disposable income was 73% in the first half of 2017, compared with 75% in the same period in 2016. Growth in household consumption expenditure is projected to increase to 1% in 2017, reaching 1.9% in 2020 as employment growth strengthens and confidence improves,” Treasury said. – SAnews.gov.za

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