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The SA Daily 20 March 2019

Eskom a severe impediment to economic growth

  • SA’s output gap is negative, with actual growth undershooting potential growth throughout our forecast horizon of 2019-2020. The SARB’s estimate too, as at the January MPC, shows it as such, before slightly turning positive in 2021.
  • This implies that underlying demand-side inflation pressures will be muted for longer. So, factoring out supply-side shocks, the risks to inflation are to the downside. We see inflation averaging 4.7% in both 2019 and 2020.
  • A prolonged and severe negative output gap shows an economy struggling to grow at, or beyond, potential. This is particularly negative for a country with extreme youth unemployment rate and profound poverty.
  • SA has been in a downward phase of the business cycle since December 2013 despite monetary policy having eased cumulatively from 12% in June 2008 to 6.75% now. Persistently poor growth, despite monetary policy accommodation, implies that structural issues have been restricting growth which declined from over 4% in 2007 to less than 1.5% in 2017; also, this is below population growth.
  • Government simply must implement constructive economic reforms in order to start growing the economy and create jobs. Eskom’s structural problems and power cuts need to be addressed urgently.

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