With strong global growth increasingly seen as a 2018 feature, as actual economic growth outpaces its potential (3.0% qqsaa for Q4.17 versus potential of 2.3% qqsaa – World Bank data), the natural outcome is that unemployment rates in many economies are reaching low levels (see figure 19). With little inflation pressure yet (despite oil prices back at 2014 levels), monetary policy is still accommodatory and is not expected to be tightened, but return to neutral levels instead. South Africa contrasts with these marked improvements, particularly on the unemployment and inclusive growth front. This is a point of concern for the credit rating agencies who see little chance of upgrades without faster, inclusive growth, fiscal consolidation and the repair of SOE finances (the latter without further drain on government’s balance sheet). SA continues to see tax hikes in this regard, although a new IMF study on fiscal consolidation finds that cutting fiscal spending is less harmful to economic growth than raising taxes. The institution says “(r)educing the debt-to-GDP ratio depends E on how the budget deficit is corrected” E warning that “by raising taxes, the downturn in growth may be so large that it raises rather than reduces the debt-to-GDP ratio. Deficit reduction policies based on spending cuts, however, typically have almost no effect on output, so they are a sure bet for a reduction in debt to GDP.” This falls squarely in line with the Davis Tax commission’s recommendation that SA needs to cut expenditure to successfully consolidate government finances. The credit rating agencies have merely given SA a reprieve, and no guarantee that the country

Download Full Report

Read the full article PDF 665.63 KB