World Bank drops SA 2017 growth forecast

The World Bank has downgraded South Africa’s 2017 growth forecast to 0.6% from 1.1% in January, stating that the country’s recovery from a recession in the second quarter of the year would not be enough to restore positive per capita GDP growth in 2017 after two consecutive years of negative per capita growth in 2015 and 2016.

For 2018 and 2019, GDP growth is expected to pick up to a moderate 1.1% and 1.7% respectively, spurred on by an improvement in commodity prices and strengthening balance sheets of households, the World Bank outlined in the tenth edition of the South Africa Economic Update, released on Tuesday.

However, this recovery prospect will remain fragile unless South Africa succeeds in bending the curve of productivity growth.

SA’s protracted growth deceleration has been underpinned by negative growth in total factor productivity (TFP), which measures how efficiently labour and capital are used in the production process.

Negative growth indicates that SA has produced less over time with the same amount of labour and capital. TFP in the country has declined since the financial crisis, costing the equivalent of 0.7 percentage points of GDP.

“South Africa’s productivity growth is diverging from global growth and the country risks falling further behind its peers,” cautioned World Bank country director Paul Noumba Um.

“This would be to the detriment of the poor, for whom a growing economy is necessary for jobs, and a sustainable system of social grants. In such an environment, where the national budget is constricted, South Africa can turn to encouraging private innovation as one of several ways in which to improve the lives of the poor,” he commented.

Between 2011 and 2015, more than 3m joined the 30.4m poor South Africans living on less than R1 138 a month, the so-called upper-bound poverty line, data from Statistics SA and the World Bank show. Almost 80% of South Africans fell below the poverty line between at one point or another between 2008 and 2015, it said.

Of these, about half were permanently poor, known as the “chronically” poor, while the other half either fell into poverty or escaped from it during the period – dubbed the “transient” poor.

StatsSA and the World Bank also assessed the factors associated with a household’s probability of escaping chronic poverty, finding that large families, children, and people in rural areas were especially vulnerable to chronic poverty.

The chronically poor live in households that have an average of seven members, which is more than twice the size of households in the wealthiest quintiles, and are overly concentrated in KwaZulu-Natal, followed by the Eastern Cape. Those resilient to poverty predominantly live in Gauteng and the Western Cape.

The level of education also had a significant impact on the incidence and persistence of poverty. Of those who did not experience a single poverty spell, 93% lived in households where the household head had attained at least secondary schooling.

In contrast, half of the household heads in chronic poverty are self-employed in the informal sector, in casual employment, or work as farmers on their own plot or food garden labour market.

More than half of those experiencing chronic poverty rely on government grants as the main source of income, while only 21% have access to electricity, running water, a flusable toilet and formal housing.

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