Global Growth and Economic Policy Uncertainty Shock Effects on the South African Economy: Do These Reinforce Each Other?

Abstract

Evidence in this chatper shows that higher GDP growth uncertainty in the US and the euro area are followed by a decline in South African (SA) GDP growth. In addition, the South African GDP growth declines more when preceded by the euro area GDP growth uncertainty. Furthermore, there is a negative relationship between SA GDP growth, labour market conditions index (LMCI) and elevated global trade growth uncertainty. The results indicate that SA GDP growth declines and labour market conditions tighten. The tightening lasts for at least five quarters following elevated global trade growth uncertainty. Similarly, both foreign and SA economic policy uncertainty shocks lower SA GDP growth and tighten the LMCI. The foreign GDP growth and trade growth uncertainties accentuate the effects of elevated foreign policy uncertainties. Evidence also shows that the repo rate declines due to foreign GDP growth uncertainty shocks. Elevated global trade growth uncertainty shocks amplifie the loosening in the repo rate.