Disastrously low economic growth expected in South Africa – Reserve Bank

Rashad Cassim, deputy governor of the South African Reserve Bank, warned that they expect “disastrously low” economic growth rates for the next three years.

Cassim spoke at the Central Banking Conference held at the Mount Nelson Hotel, Cape Town, this week.

He told delegates that the Reserve Bank expects growth rates of 0.3%, 0.7% and 1.0% over the next three years. “These are disastrously low,” he said.

Given population growth rates of around 1.2% annually, the implication is that living standards will continue to fall, as they have done on average since 2014.

“Our growth rate also compares very badly to the historical record. Since the 1960s, South Africa has, on average, managed to grow by about 2.8% a year,” Cassim said.

“This is around four times the average growth rate for our forecast and the past ten years. This feeble growth outlook is also related to other social ills, including our 33% unemployment rate.”

Even more concerning is that the South African Reserve Bank’s potential growth estimates are even lower.

“The team estimates potential growth at 0% this year, then 0.6% in 2024 and 1% in 2025,” Cassim said.

Because the economy performed better than expected last year and because expected growth is above potential, the forecast sees a small positive output gap developing this year.

The output gap is an economic measure of the difference between the actual output of an economy and its potential output.

“In the interpretation of our quarterly projection model (QPM), we have an economy operating modestly above its potential,” Cassim said.

“And this, in turn, supports policy advice to raise rates not only because inflation is above target, but also because growth is too high.”

The deputy governor said he is struck by two plausible but competing interpretations.

1. Potential growth must be 0%, or worse, given the scale of supply-side dysfunction in the economy.
2. Is it possible for the economy to be at full potential when unemployment is over 30%?

“These competing views are not wholly incompatible. They both capture important truths,” he said.

The main point of the comparison is to illustrate how the economy is short of some inputs, like electricity, but there is slack in other areas, such as employment.