SA praised for fiscal policy as European turmoil continues unabated

Economic data for October continue to highlight the relatively weak position of the South African economy – despite the fact that SA is performing better now than at the same time last year - but SA fiscal authorities must be praised for a job well done, says BoE Private Clients economist Madalet Sessions

“We are comforted by the recognition that prudent fiscal policy is a prerequisite for growth, that investment expenditure should be prioritised as a matter of urgency to enable faster growth, and that paying ever more generous public servant wages compromises both these goals,” says Sessions.

She says that, in light of the difficulties that developed market economies are facing as a result of past recklessness by their governments, “we cannot but help admire a job well done by SA’s fiscal authorities”.

“If government can successfully prioritise infrastructure investment and rebuild fiscal space, South Africa will continue to compare favourably against developed market economies and will attract the capital required to grow,” says Sessions.

In contrast, the outlook for Europe remains bleak.

“The severe austerity that will be required by borrower nations, the absolute resistance by indebted nations to make the sacrifices required, and the reluctance of political leaders in stronger economies to ease the adjustment for fear of inflation and the consequences for their own debt profiles do not bode well for Europe,” says Sessions.

“However consumer data and other economic indicators released during October continue to highlight a relative weak SA economy, which indicates that we are not yet experiencing any inflationary excess demand,” says Sessions.

“The numbers suggest that the economy requires a bias for easier monetary policy, including lower interest rates for longer, to ensure sustained recovery.”

According to Mike Schüssler, economist and compiler of the monthly Provincial Barometer which analyses economic activity in the Western and Eastern Cape, Gauteng, KwaZulu-Natal and the Free State, the SA economy is performing better now than at the same time last year, but worse than in the first half of 2011.

“We have to take care not to be overly negative about our economy but, despite lower unemployment, the positive effect of lower interest rates and consumers’ strong willingness to buy, we are now experiencing the most difficult period since the recession,” he says.

Schüssler says that the winds of the foreign debt crisis are starting to blow towards the SA economy and that, although economic stress factors are less oppressive than a year ago, challenges on the business environment had to be address in order to ensure growth.

“Now it is more essential than ever for government to spend on the appropriate things – things that can stimulate growth – and for South African businesspeople to receive proper support. This support does not necessarily need to be financial, but rather through the creation of a positive business environment.”