With an improved economic outlook for SA, it looks as if there is light at the end of the tunnel for South Africa, but the risk of a spill-over shock if global inflation surges cannot be discounted completely.
According to Absa’s South Africa Q2 21 Quarterly Perspectives report, economists have raised their 2021 GDP growth forecast from 3.1% to 3.8%, but believe a big hit to household disposable income in 2021 will limit the recovery in consumption spending.
Not all the predictions in the report are good news:
- Fixed investment is likely to stay weak amid still-depressed business confidence.
- Medium-term GDP forecasts from 2022 onwards remain unchanged at about 2%.
- Load shedding and Covid-19 will likely limit South Africa’s near-term recovery. While there is no sign of a third wave yet, it could still happen, while Eskom’s maintenance efforts have not significantly stabilised its generating fleet.
- Inflationary pressures remain subdued with little broad demand-pull momentum, although a few cost-push drivers could push headline CPI higher in the near term.
- Inflation is likely to be mostly in the bottom half of the target range.
- Another current account surplus is forecast in 2021, helped by export volume growth and terms of trade.
- A markedly stronger exchange rate forecast, with the rand expected to be R14.25/USD by mid-year and R15.25/USD by year-end.
- Rates will stay low for long; with a large output gap, subdued credit growth and quiescent inflation, they believe the Reserve Bank monetary policy committee will leave the repo rate on hold at 3.5% until March 2022.
- Fiscal policy remains challenging despite the better than expected tax collections, but there is a risk the government’s plans to freeze public sector wages will not succeed.
- Debt stabilisation is still possible
- Further credit rating downgrades remain more likely than not, but the risk in this direction has lessened.
- A main budget deficit this year of R437bn, or 7.9% of GDP is forecast.
- While there has been some structural reform progress, overall progress is likely to be much slower than envisaged in the Economic Reconstruction and Recovery Plan.
- The factional standoff in the ANC seems to be slowly resolving in President Cyril Ramaphosa’s direction, but the party still has big economic ideological divides.
- Uncertainty is high.