A gauge measuring the level of South African confidence in government policy showed increased levels of uncertainty in December, reflecting concerns about the pace of economic recovery and the likely impact of US President-elect Donald Trump on global trade.
The Policy Uncertainty Index compiled by the North West University Business School rose to 65.7 in the fourth quarter, compared with 53.5 during the prior three months, the institution said in a statement Thursday.
The data highlights that South Africa’s economy “remains in a slow and uneven cyclical upswing,” said Raymond Parsons, a professor at the Potchefstroom, South Africa-based college. “South Africa is therefore still in the foothills of economic recovery.”
South Africa’s economy unexpectedly shrank 0.3% in the third quarter, dragged down by a slump in farming output, and placing it on track to miss growth targets for the full year. In the nine months to September, the country’s gross domestic product rose 0.4%, short of a full-year estimate of 1.1% by the National Treasury and the South African Reserve Bank.
Optimism grew earlier this year after the formation of a new business-friendly government in May, put together after the African National Congress lost a majority for the first time since the first all-race elections in 1994. Trump’s electoral victory last month has helped to erode that sentiment, with investors fearing inflationary tariff policies and a slower-than-anticipated rate-cutting cycle.
A strong US currency would be a blow for South Africa as it would make its imports more expensive. The rand has already weakened 3.6% since the US election on Nov. 5.
“Global concerns and uncertainties have now arisen about the wider impact of intended foreign and tariff policies by US President-elect Trump,” Parsons said. “There could subsequently be collateral damage to several other trading arrangements, such as African Growth Opportunity Act, in which South Africa has an important stake.”
Still, high policy uncertainty is reversible, if South Africa uses the domestic tools available to take the right steps, he said. That includes forging ahead with plans outlined by President Cyril Ramaphosa’s so-called government of national unity, such as overhauling the energy and water sectors.
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Source: Bloomberg
