U.S. Policy, Brexit Are Risks to South Africa Economy, Treasury Says

  • Gordhan keeps GDP growth forecasts through 2019 unchanged
  • Budget deficit projected to narrow to 3.1% of GDP in 2017-18

The potential fallout from the policy direction of new U.S. President Donald Trump and the U.K.’s vote to leave the European Union hold risks for the South African economy, the National Treasury said.

While keeping his economic growth estimates for the four years through 2019 unchanged from projections published in October, Finance Minister Pravin Gordhan said in his budget review presented to lawmakers in Cape Town on Wednesday the implications of recent international developments for South Africa’s economic trajectory needs to be considered carefully.

“The policy direction of the new U.S. administration, the outcome of the U.K.’s vote to leave the European Union, and upcoming elections in France and Germany are contributing to global uncertainty,’’ Gordhan said in the review. “The resulting uncertainty is the single-biggest risk to global recovery, with potentially serious consequences for South Africa.”

Africa’s most-industrialized economy probably expanded 0.5 percent in 2016, the slowest rate in seven years, Gordhan said. Growth is projected to accelerate to 1.3 percent this year and 2.2 percent by 2019 as commodity prices stabilize, the effect of the drought abates and business and consumer confidence recover, according to the budget.

Political turmoil, including a police investigation into Gordhan and a clash between him and President Jacob Zuma about the management of the tax agency, has complicated efforts to boost growth and investment in the economy.

Prospects Improve

Domestic economic “prospects have improved,” Monale Ratsoma, head of economic policy at the Treasury, said in an interview on Wednesday. “There is still a bit of political overhang that impacts confidence, but once that is sorted out we are looking at a better 2017 than 2016.”

The fiscal shortfall for the current fiscal year will probably be 3.4 percent of gross domestic product, unchanged from the October projection. The deficit is forecast to narrow to 3.1 percent of GDP in 2017-18 and 2.6 percent by the year through March 2020, according to the budget review.

Inflation is forecast to average 6.4 percent this year, according to the budget review. The central bank has raised its key lending rate by 200 basis points since the start of 2014 to try limit consumer-price growth to within its 3 percent 6 percent target band.

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