Hopes for more growth as restrictions are eased

Treasury has identified new waves of Covid-19 infections and associated disruptions to economic activity as the most serious risk to expected growth this year.

Treasury’s director-general Dondo Mogajane told a group of domestic and global investors this week that the far-reaching Covid-19 economic impact had exacerbated the poor outcomes of the last decade.

In a behind-closed-doors call, Mogajane said significant risks remained for the economic and fiscal outlook on the slow pace of the country’s vaccine study rollout programme.

“A successful vaccine rollout is likely to boost domestic economic growth, enabling renewed trade and releasing pent-up demand,” noted Mogajane, adding: “A slow rollout poses the most significant threat to economic recovery.”

Treasury and senior officials from the SA Reserve Bank were making a case for the expected rebound and efforts to stave off potential downgrades following the tabling of the 2021 Budget Review last week.

President Cyril Ramaphosa announced the easing of restrictions as the rate of Covid-19 infections showed a decline amidst the rolling out of a vaccination study.

However, the number of people filing new claims for unemployment benefits rose in February.

The labour market outlook showed signs of improvement amid declining new Covid-19 cases with factory orders increasing more than expected in January, pointing to a sustained recovery in manufacturing, even as the pace of business spending on equipment slows.

The domestic economy experienced from the harsh regulated shutdown of economic activity last year would persist until 2024 in real terms.

Level 1 restrictions would see the curfew shortened between midnight and 4am, and alcohol sales allowed according to normal licence provisions.

But nightclubs remain closed, and night vigils or other gatherings before or after funerals are still not permitted.

Limitations on the number of attendees at public gatherings are also relaxed with appropriate social distancing, while 20 land border posts and five airports remain open for travel.

This is expected to boost activity in the hospitality and tourism industry, which was hit hard by the impact of restrictions since the onset of lockdown at the end of March last year.

Old Mutual Investment Group’s chief economist Johann Els said there was optimism about economic growth prospects, saying he expected five percent plus growth in 2021.

Els noted South Africa, however, still had a number of factors that could help lift growth, including very strong post-Covid pandemic global economic support to drive investment.

“The missing link is stronger confidence and 2021 could be the turning point for confidence,” Els said.

“Businesses need confidence to thrive.

“Better confidence brings better growth and better growth brings better confidence, and so the cycle comes into play,” he added. -IOL