Major potential growth drivers, such as capital accumulation and employment, are under strain in the South African economy.
This is the word from Thea Fourie, senior economist at IHS Global Insight, who writes that the biggest constraint over the medium to long term will be a draw-back in investment spending, partly due to structural constraints in areas such as electricity and transport infrastructure.
In light of this, IHS expects GDP growth to remain below 3% for 2015 to 2018.
“The latest developments suggest that South Africa’s medium-to-long term growth potential has come down,” Fourie writes. “The biggest constraint over the medium to long term will be a draw-back in investment spending, partly due to structural constraints in areas such as electricity and transport infrastructure. The country’s growing labour force is positive for long-term growth potential. However, a very low labour absorption rate continues to be problematic.
“A worrying trend is the draw-back in private sector capital accumulation, especially in the services and production areas of the economy. Not only is South Africa’s manufacturing sector adding slower capacity to its existing capital stock, but an uncertain policy environment after the suspension of investment treaties, severe electricity and transport infrastructure constraints, and a worrying global backdrop are unlikely to result in a sharp turnaround in private investment spending in the near term.
“As the government moves towards some fiscal consolidation after implementing counter-cyclical spending policies in recent years, the likelihood of some slowdown in government capital spending should not be ruled out.
“South Africa’s growing labour force will add to the longer-term growth potential. However, slow absorption into tertiary education, in some cases necessary for the growing services sector of the economy, adds to employment constraints. Furthermore, years of a low growth environment – a result of structural constraints – and a highly unionised, inflexible employment market add to South Africa’s labour woes.
“Overall, IHS expects South Africa’s potential growth rate to come down over the longer term. For 2015–18, IHS expects GDP growth to remain below 3%.
