Following the disappointing GDP growth numbers for the first quarter, all eyes remain on policy direction and reforms as the potential catalysts for sustainable growth.
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Despite Ramaphosa’s election, the initial excitement isn’t visible in the numbers
In December, markets were pleasantly surprised by the outcome of the elections that saw Ramaphosa’s swearing in as president of South Africa in parliament. The rand and assets dependent on the South African economy benefited from the excitement. However, in early June, Stats SA released the GDP data, and it was disappointing. We had expected much stronger growth. Also, from conversations we have with domestically focused businesses, we know that a lot of the excitement that followed Ramaphosa’s election has not translated into activity on the ground.
Policy direction and reforms will determine whether we will see sustainable economic growth
Like most domestic businesses, we are now waiting to see whether policy and reform efforts will generate sustainable economic growth. We found National Treasury’s decision to increase VAT instead of raising income taxes (as announced in February) encouraging, since VAT is known to be less harmful to economic growth.
Since we cannot predict the future, it helps to diversify to prepare for a range of outcomes
No one knows what the future holds. We cannot predict whether or not South Africa will embrace economic growth. We also don’t know if US trade policies will be reversed. In this context, having a range of assets that could benefit from different economic scenarios would help investors to prepare for all potential outcomes.
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