South Africa’s gradual structural reforms are breathing life into the economy, but aren’t sufficient to lift the growth rate to the government’s 3.5% target, according to Moody’s Ratings.
Africa’s largest economy has grown less than 1% annually for more than a decade, hamstrung by dilapidated infrastructure, electricity shortages, logistics bottlenecks, crime and corruption. A coalition government, formed after the African National Congress lost its majority in last year’s national elections, has prioritised reforms as it seeks to spur growth to as much as 3.5% by 2030.
“We don’t see, in our baseline, that the current reform progress to date – and our expectation of how reforms will progress – will be sufficient to raise economic potential beyond 2%,” Evan Wohlmann, vice president – senior credit officer at Moody’s, said in an online briefing on Tuesday.
A study conducted by Investec Wealth & Investment International found that the economy is at least 37% smaller than it would have been had it tracked its emerging-market peers and sustained annual growth of 4.5% since 2010.
Moody’s expects South Africa’s output to expand by 1% this year and 1.6% in 2026.
The malaise is likely to impact the government’s efforts to manage its finances, Wohlmann said.
“In our view, it will be challenging for South Africa to achieve a meaningful decline in general government debt without significantly higher economic growth than is forecast under our baseline,” he said.
Listen to Jeremy Maggs’s interview on South Africa’s economy with Old Mutual group chief economist Johann Els in this Moneyweb@Midday podcast:
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