Policy uncertainty eased in the fourth quarter of 2022 as local economic growth and global inflation prospects improved, encouraging potential for new investment and job-rich growth.
This is one of the conclusions of North West University (NWU) Business School’s latest policy uncertainty index (PUI) to be released on Monday.
Overall, the PUI gauge eased slightly to 53.2 from 59.6 in the third quarter of 2022.
NWU Business School professor Raymond Parsons said the improvement was a result of several positive trends in SA in recent months.
“While SA will not entirely escape unfavourable global developments, the much better-than-expected GDP growth in quarter three, a slight easing in the rate of inflation, lower fuel prices, improved employment figures, and the well accepted medium term budget policy statement in October have had a positive impact on the PUI,” Parsons said.
SA’s economic growth surprised in the third quarter, growing 1.6% and coming in well above market expectations.
“The re-election of President Cyril Ramaphosa as ANC president appears to have had a particularly favourable impact on the last quarter PUI,” said Parsons.
He said the leadership outcome of the ANC’s 55th elective conference, together with credit ratings agencies maintaining a stable outlook for SA, were some of the reasons for the improved sentiment.
Policy uncertainty affects growth, employment and investment. Lower levels of policy uncertainty create an opportunity to strengthen a country’s economic prospects.
A rise in the index beyond 50 reflects heightened policy uncertainty, while a drop means reduced uncertainty.
Parsons said that because Ramaphosa emerged from the conference with a strong mandate and majority support in the ANC hierarchy business and the markets perceived the new ANC leadership as committed to expediting economic reform and implementing pro-growth policies and projects in 2023.
But even with the slight improvement, the PUI was still in negative territory, and big challenges remain in 2023.
Globally, the Russia-Ukraine war, inflation, the accelerated slowdown in the world economy including for Sub-Saharan Africa, weaker international commodity prices, as well as the outlook for energy and food prices, will shape world economic prospects.
The IMF recently cut its 2023 global growth forecast from 2.9% to 2.7%. The IMF says that more than a third of economies worldwide will have contracted by the end of 2022, or will do so during 2023.
Growth in Sub-Saharan Africa is also expected to slow sharply, by more than 1% to 3.6%, in 2022 and to remain at about that level in 2023.
At the same time, central banks including the US Fed, will want to see more definitive evidence of declining inflation — “and even in some cases likely rising unemployment” — before cutting interest rates.
“And several markets are gradually adjusting to that scenario,” Parsons said.
Locally, the shock resignation of Eskom CEO André de Ruyter in mid-December put a big question mark over the future role and functioning of Eskom, Parsons said, even as intensified blackouts in the fourth quarter of 2022 had hurt economic and business activity.
Business leaders and markets saw De Ruyter as a “stable factor” broadly moving Eskom in the right direction in its future financing and restructuring.
Parsons said another issue threatening policy certainty is the continued weakening in household spending as a result of high inflation and higher interest rates. Food inflation continued to erode household budgets, especially those of poor and working-class families.
“But the calibration of quarter four PUI suggests that some negative factors have either ameliorated or are now being largely priced in by markets,” Parsons said.
He said that stronger economic growth in SA now requires multi-tiered good news on the implementation front in 2023, especially on energy matters.
“Absent that, it is hard to see the economy attaining the levels of investment and job creation that it needs. There is no room for complacency.
“The big challenge in unlocking SA’s true economic potential remains the rapid and successful implementation of key domestic reforms that further reduce policy uncertainty and ignite confidence,” he said.
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