This Selected Issues paper estimates the potential growth rate for South Africa using different methodologies. In line with existing studies and findings for other emerging markets, the paper finds that South Africa’s potential growth rate has declined in the post global financial crisis period. Though there is substantial uncertainty, South Africa’s potential growth is estimated to have fallen from an average of 3.5 to 4 percent during 2000–08 to 2.25 to 2.50 percent in 2010–14, implying that the output gap in 2014 would be between –0.5 and –1.3 percent of GDP.

South Africa: Selected Issues

This Selected Issues paper highlights that cautious monetary and fiscal polices of South Africa during 1997 resulted in a return of financial investor confidence and capital inflows during 1997 and through April 1998. These policies helped the South African economy emerge successfully from the exchange market pressures of 1996 and weather the contagion from the East Asian crisis in the second half of 1997. Throughout 1997 and up until May 1998, inflation and market interest rates fell considerably, net international reserves increased, and the net open forward position of the Reserve Bank was reduced sharply.

This paper describes South Africa’s economic development and challenges. South Africa has made considerable economic and social progress over the past two decades, but faces substantial challenges. Global transitions—China’s slowdown and rebalancing, weak commodity prices, and U.S. monetary policy normalization—are taking a heavy toll on South Africa. Growth and employment, which were already low, are faltering and continue to underperform peer countries. Vulnerabilities remain elevated and have increased in the real and fiscal sectors. Boosting growth and job creation, thus reducing extremely high unemployment and inequality, and promoting social transformation remain South Africa’s key challenges.