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What can we expect and what can we hope for when we look at the South African economy in 2022? Our economy already struggled before the pandemic and will continue to struggle as we learn to live with the new variant of Covid-19.
With an unemployment rate of 34.9%, the highest ever, as well as rising inflation and interest rates for the first time since the start of the pandemic, continuing unreliable electricity supply, little business and consumer confidence and political and policy uncertainty, the country can expect little investment.
Economists agree that South Africa’s economic outlook for 2022 is uncertain, but there are some things we can expect and things we can hope for.
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Professor Jannie Rossouw from the Wits Business School says he expects more outrageous statements from ANC leaders as the party tries to consolidate its position as smaller parties know that they can win the next election, even if they just win provinces and not the national election.
He is also keen to see what will happen once the Zondo report is handed over to the president and what will be done with the report. “The issues remain the same and only the names of the commissions change,“ he said.
Rossouw also expects more of the same regarding the socialist control of government. “Government could do so much better if it hands over control of entities such as Transnet and the ports to the private sector to run, but government wants to control everything.
“While the ANC has its own financial problems and is not even able to pay its staff salaries, it still chases transactions that will add to its own pocket, such as the Karpowership transaction. As soon as I see a minister getting excited about a transaction, I know there is something behind it for the ANC,” he said.
Rossouw questions government’s plans to spend even more money on grants and national health insurance if it has no money.
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PWC SA says in its economic outlook for 2022 that the country can expect to benefit from a strong global economic context over the next 12 months, as well as less restrictive lockdown regulations and increasing local vaccination rates, but points out that the country also faces many challenges carried over from 2021.
These challenges include load shedding and the bad state of municipal finances, as well as global and local supply chain issues. While the impact of Covid-19 retreats, load shedding is now the country’s biggest economic challenge.
We can also expect to see fiscal and monetary policy gradually becoming less accommodative over the next three years, while spending on social development will be rolled back as temporary support measures expire and money allocated to healthcare will decline as the worst of the pandemic is expected to fade.
PWC also expects spending on economic development, industrialisation and exports to increase to directly support economic growth and welcomes National Treasury’s more conservative projections of expected average real gross domestic product (GDP) growth of only 1.7% per year from 2022 to 2024 at the bottom end of economic forecasts while it has been overoptimistic over the past decade.
The Monetary Policy Committee (MPC) is expected to take at least two-and-a-half years to again increase interest rates by 300 basis points, while the midpoint inflation target of 4.0% could be the next inflation goal.
PWC says it is not possible to predict the occurrence, frequency and duration of load shedding in 2022, but expects it to be similar to 2020 and 2021, as there is no reason to believe that Eskom has sustainably improved the reliability of its power delivery.
The South African Reserve Bank (SARB) expects GDP growth of 5.0% among South Africa’s major trading partners, which is good news for export industries such as mining that contributed to the local economic recovery. However, the resurgence in Covid cases in major trading and financial hubs could impact physical demand for South African goods.
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Deloitte says the uptake of government’s vaccination drive will partly determine the degree of economic recovery, as well as its reformation of the electricity, transport, tourism, water, telecommunications and infrastructure sectors. The degree of success in these reforms will have long-lasting effects on the South African economic outlook.
“While South Africa’s medium-term economic outlook has improved slightly in 2021, primarily due to improving global conditions, its economic health is still in fragile territory. Structural constraints, lack of investor confidence and continuing fallout from the pandemic on jobs and investment will undoubtedly have long-term adverse consequences on the economy and people’s livelihoods,” Deloitte says.
The Organisation for Economic Cooperation and Development (OECD), an intergovernmental economic organisation founded to stimulate economic progress and world trade, says in its outlook for South Africa in 2022 that high commodity demand and sustained high prices will continue to boost exports and government revenues until mid-2022, while investment is expected to increase from 2022.
Focus Economics says in its economic outlook for South Africa that it expects economic growth to moderate in 2022 following this year’s projected strong bounce-back, partly due to a less favourable base of comparison and healthier private consumption and export growth should support activity.
The high unemployment rate and increasing public debt stocks in turn pose key downside risks to the outlook, with Focus Economics panellists expecting the economy to expand by 2.1% in 2022, down 0.2 percentage points from the previous projection.
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Rossouw hopes for higher economic growth after the battering the economy received in 2020, as this will ensure more jobs.
According to Deloitte, much work remains to be done, although South Africa’s medium-term outlook has improved slightly, especially on the healthcare front. Government and the private sector need to work together to improve the country’s long-term economic outlook now more than ever.
Although growth was less impressive during the second half of 2021, the South African economy is projected to return to pre-pandemic levels a full year earlier than previously expected, with the outlook for the local economy bolstered by improved global conditions.
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Michael Sachs, adjunct professor at Wits, wrote on The Conversation that an improved fiscal outlook that accommodates spending pressures is encouraging but there are two warnings: firstly, the chronic position of the country’s public finances continues to worsen, with growth remaining far below interest rates and GDP per capita expected to continue stagnating and debt service costs crowding out social spending.
He points out that while Cabinet is unable to offer a programme to overcome the grave operational and financial crises in the provision of municipal services, electricity, water, road construction and passenger rail, declarations that “there will be no bailouts” are posturing.
Secondly, Sachs says Treasury’s strategy to overcome this chronic fiscal crisis rests on highly uncertain political and economic foundations. The strategy proposed is a deep shock to public expenditure executed over the next two years. In real terms, core spending is set to contract by 4% each year. This amounts to reduction in real spending per capita of more than 10%.
“The 2021 medium term budget policy statement tells us that following this short, sharp, shock to government consumption, the period of fiscal consolidation will be concluded. Having achieved a primary surplus, the national debt will stabilise, and expenditure increases will resume along a prudent path.”
He says government will face various choices in the next two years: the public-sector wage agreement, the permanent extension of basic income support to working-age adults and the resolution of the operational and financial crisis of public utilities.
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