Ricochet News

South African Economy Enters 70th Month of Downward Cycle: How Can We Improve the Outlook?

Oct 2, 2019
South African Economy Enters 70th Month of Downward Cycle: How Can We Improve the Outlook?

Port Elizabeth - The latest economic data from South Africa’s Reserve Bank suggests that the country’s economy continues to struggle, as it’s now in its longest downward cycle since 1945, according to the data.

The news is worrying for residents of the Eastern Cape who are already concerned about sky-high unemployment rates. As a result, further pressure has now been placed on the government to reform the economy to help struggling businesses and improve consumer confidence. 

What Does the Data Show Us?

The data, released by the Reserve Bank, revealed that economic growth and business confidence were both at multi-year lows.  The news is particularly negative and unexpected because Q2’s economic data had shown a higher than expected growth rate of 3.1%. However, in many ways it’s a return to the norm for the South African economy as, in the first quarter of 2019, the economy contracted by 3.2%.

The international trading markets were quick to react to the economic news. Although this level of volatility is handy for people who are options trading because they can make trades in rising, falling and sideways markets, it’s particularly devastating for the rand, which weakened a further 0.9% against the dollar to 15.0079 in the wake of the announcement.

Likewise, due to a general lack of investor confidence, portfolio investments declined to 9.98 billion rand from 29.2 billion.

How Do We Change the Economic Outlook?

Source: Pexels

South Africa’s economy remains the most industrialised in Africa, but it hasn’t expanded by more than 2% since 2013, and updated forecasts say that it won’t reach this rate until 2021 at the earliest; particularly with such a high unemployment rate. To help improve South Africa’s economic outlook,  the Reserve Bank has urged the government to structurally overhaul the economy. 

The pathway to improving the South African economy appears clear. Firstly, policy uncertainty must be removed. Until now, senior leaders in the government have been unwilling to put forward major economic policies, stating that these would go beyond the mandate to lower inflation. However, it’s clear that this policy uncertainty is hampering investment.

Two potential solutions to this are to allocate new broadband spectrum and slacken visa regulations for entrepreneurs and skilled migrants. 

By simply rolling out a new 5G network, Reserve Bank Deputy Governor Kuben Naidoo believes that direct investment can be boosted by up to 0.5% of gross domestic product. He also believes that the move could create new economic markets.

Also, by relaxing visa laws for skilled migrants, it’s believed that a further 300,000 full-time jobs could be created per 1 million visitors to the country, according to Mr Naidoo's comments to Bloomberg. This would then help to reduce an unemployment rate that's reached 29% and many believe to be at a near crisis level. 

Looking to the future, boosting business sentiment levels is the key to unlocking economic growth, as a turn in this level is usually a key indicator in predicting when the economic cycle will change. However, as sentiment recently dropped from 93.3 to 92 in June, several authoritative steps need to be taken by the government to reverse this worrying trend before the economy can strengthen.

Main image: Source: Pixabay

Follow more RNEWS articles, subscribe to our YouTube channel and for breaking news LIKE us on Facebook. For news on the Western Cape click here.

For great savings on life’s little pleasures visit Bargain Buys!  Know somebody who is getting married, Wedding and Function can assist.  Have kids, then you need to visit Kids Connection. Enjoy food and travel, then visit Home Food and Travel. Need assistance with an online presence, visit Agency One.