Policy uncertainty: News is both good and bad

Henry

There is currently slightly more policy certainty despite great uncertainty about the outcome of this year’s election and the fact that the business school of the North-West University (NWU)’s latest policy uncertainty index is still well in the negative territory.

The business school’s policy uncertainty index figure for the fourth quarter was released this week and indicates that policy uncertainty has fallen slightly – from 71.8 points in the third quarter to 65.5 points in the fourth quarter. The base point is 50.

This is the second consecutive quarter that the policy uncertainty index figure has fallen slightly. The business school says the improvement is welcome, but not enough. Concerns about the situation therefore continue.

“Negative developments affecting the policy uncertainty index for the fourth quarter include the worse than expected growth outcome of -0.2% in the gross domestic product (GDP) over the third quarter of 2023, increasing load shedding, the bottleneck at Transnet and contraction of household finances.”

The business school says that the wide variety of possible election outcomes later this year testifies to the high levels of uncertainty that currently prevail.

However, according to the business school, these negative policy uncertainty index levels can be gradually reversed if the right policy statements and projects are implemented.

It is also encouraging that inflation is now moving well within the Reserve Bank’s target band of between 3% and 6%. “Interest rates in South Africa may have now also reached a peak and lending costs may start to skyrocket later in 2024.”

The business school also points out that there are already a number of reform initiatives emerging in major policy areas such as energy, logistics and transport. The business school says these policy areas could become important drivers for this year’s growth prospects.

“The challenge therefore largely remains to speed up the implementation of agreed half-baked policy statements and projects that can help to further reduce policy uncertainty by ensuring that the headwinds outweigh the headwinds in 2024.”

The NWU’s business school’s policy uncertainty index – the net outcome of positive and negative factors that influence the calibration of policy uncertainty over the relevant period – was published for the first time in early 2016.