US bank picks SA for growth
Friday, 02 Sep 2011
In A report outlining the long-term growth outlook for European, Middle East and African (Emea) countries, Bank of America Merrill Lynch says SA, Turkey and Saudi Arabia are the markets with the most promising 10-year growth outlook.
"Based on an analysis of growth determinants from demographics to leverage, we conclude that this decade Turkey, SA and Saudi Arabia will improve their growth performance. We see the highest average level of growth in Turkey (4,8%) and SA (4,2%), with most of the rest of the region clustered between 3%-4%."
Under a heading, South Africa: not spent yet, the bank forecasts that stronger than expected consumer spending and a stimulus from government investment on infrastructure are likely to boost growth to 5% between 2013 and 2016.
Without structural reform, growth is likely to fall back to a 4% trend pace, insufficient to meaningfully reduce unemployment, the bank predicts.
"We see sound reasons for a stronger than expected consumer story even though SA's growth may look somewhat pedestrian compared with Bric economies like China and India. We think the thrust of government policy -- on jobs, infrastructure and service delivery -- will provide the backdrop for positive consumer growth that is less driven by the middle class and more by lower-income households migrating up the income ladder. Government infrastructural spending will also be a key boost to growth.
"We estimate that the combination of upward surprises to consumer spending and public infrastructural spending should help boost growth to a 5% pace between 2013 and 2016," the bank says.
But it notes that structural reform is the key to boosting SA's growth.
"Without efforts to address key headwinds to growth, for instance by alleviating the skills gap in the short to medium term via skilled immigration, revitalising the educational system, and through labour and product market reform, we think that SA is likely to moderate back to a 4% pace of growth until 2020.
"If tough decisions are taken over the next few years, SA's growth potential could accelerate beyond 2016 to 6%, in our view. The introduction of the national health system , while likely to be phased in over a 15-year period, has the potential to be a significant headwind to growth via a growing fiscal and tax burden."
The report points out that a number of structural issues hamper SA's ability to maximise growth and employment.
Three key constraints, it notes, are a skills mismatch, inflexible labour markets and onerous product market regulation.
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