For Narendra Modi, everything seems to be going his way. In 2016, India’s economy reported one of the strongest GDP growth rates, macroeconomic fundamentals have consolidated, reforms are advancing and Modi’s party won a major victory in the most recent legislative elections. Yet the government must now deal with the deterioration in India’s public-sector banks, which is hampering loan distribution and holding back corporate investment. The authorities intend to create a centralised special purpose vehicle, but public funding of a bad bank risks undermining the current fiscal consolidation movement.
South Africa’s short and medium-term growth prospects remain very uncertain. The external factors that contributed to the economic slowdown in recent years are expected to become more favourable, as Chinese growth stabilises and commodity prices pick up. Internal factors, in contrast, risk having a generally negative impact on total factor productivity (TFP) and on the investment capacity of companies and households.
