Supplementary Budget 2020

#Budget2019: Tough times ahead with economic outlook worse

The economic picture emerging from Budget 2019 was not a rosy one.

Finance Minister Tito Mboweni said in his speech the outlook for South Africa had weakend over the past couple of months, and many of the risks that were warned about in the Mini Budget in October had materialised.

Forecasts

The estimate on gross domestic product (GDP) growth for last year stays at 0.7%, but the Buget Review shows lower forecasts for 2019 (1.5% against 1.8% in February 2018) and 2020 (1.7% against 2.1%). Growth of 2.1% is forecast for 2021.

Mboweni said that, due to SA being a small open economy, "we were impacted by events in the global economy. World growth is now expected to slow, constraining South Africa's export growth forecast".

Investment

The Budget Review states that investment remains subdued. Investment fell by 0.3% year-on-year in the first three quarters of 2018, following a 0.7% expansion in the same period in 2017. Investment by private businesses and general government declined.

"As a percentage of GDP, investment has persistently declined, reaching a 13-year low of 17.7% in the third quarter of 2018. The combination of low growth in employment, investment and productivity continues to restrain economic growth," the review says.

Hope is nevertheless expressed that investment growth will gradually increase as business confidence slowly improves, worn-out capital is replaced and the state improves its ability to execute capital projects.

However, concerns about electricity supply and slower global growth pose risks to the near-term outlook.

Inflation

It is stated that, despite the weaker nominal exchange rate, South Africa's inflation remains higher than that of its trading partners. Headline inflation slowed from 5.3% in 2017 to 4.7%t in 2018, as lower food and services inflation offset high petrol inflation in the second half of the year.

Fuel inflation, however, rose to 20.1% in the second half of 2018 due to higher oil prices, putting upward pressure on public transport and freight costs. As a result of these large fuel price increases, the Department of Energy is reviewing the basic fuel price formula. 

READLIVE Budget2019: Thuma Mina. Pay your municipal bills on time.

Consumer Price Index (CPI) inflation is expected to reach 5.2% in 2019 in response to rising food inflation associated with higher fuel and agricultural input prices.

Electricity inflation is also expected to increase. The National Treasury assumes an annual adjustment of 10% in electricity prices in each of the next three years, effective from July 2019.

The Budget Review is quite open about job creation, admitting that "the labour market obstructs easy entry into employment, particularly for young people".

It states that private-sector employment growth has been slowing since 2011. Job creation remains stagnant. The unemployment rate declined marginally from an average of 27.5% in 2017 to 27.1% in 2018.

However, this is largely the result of a 16.8% growth in the number of discouraged work seekers, who are not counted in the unemployment rate", the Review reads.

ZAR/USD
17.54
(+0.10)
ZAR/GBP
22.98
(+0.04)
ZAR/EUR
20.66
(-0.01)
ZAR/AUD
12.59
(+0.05)
ZAR/JPY
0.17
(-0.04)
Gold
2034.54
(+0.03)
Silver
28.27
(+0.11)
Platinum
961.50
(+0.38)
Brent Crude
44.55
(-1.53)
Palladium
2166.01
(+0.63)
All Share
56757.73
(-1.56)
Top 40
52435.65
(-1.72)
Financial 15
9897.96
(+0.10)
Industrial 25
74671.49
(-1.98)
Resource 10
58948.78
(-1.89)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes. We need the money.
11% - 937 votes
It depends on how the funds are used.
74% - 6260 votes
No. We should have gotten the loan elsewhere.
15% - 1286 votes
Vote