Fitch lowers South Africa’s GDP outlook

American rating agency Fitch has taken a substantially more bearish view of South Africa’s growth prospects, reducing its GDP growth forecast to just 0.2% for 2023.

This is down from its previous forecast of 1.1% at the beginning of 2023. Fitch expects growth of 1.2% in 2024, weaker than its initial projection of 1.7%.

Fitch said in a webinar yesterday that these downward revisions were mostly attributable to the effects of ongoing load-shedding.

The agency expects load-shedding to have a noticeable effect on longer-term potential growth if not resolved swiftly.

It also commented on the recent public-sector wage deal, saying that the agreement was better than it had assumed but warned of rising tensions between labour unions.

Fitch has a rating of BB- for South Africa with a stable outlook, and the expectation is that this is unlikely to change in the foreseeable future.

SARB lowers GDP projection

Fitch’s latest GDP growth forecasts align with the South African Reserve Bank’s (SARB) expectations for 0.2% growth in 2023 and 1% growth in 2024.

This revision comes in light of the SARB’s monetary policy committee’s announcement of another interest rate hike and the continuation of South Africa’s hiking cycle.

Reserve Bank governor Lesetja Kganyago also pointed to the effects of ongoing load-shedding.

“As a result of extensive load-shedding and logistical constraints, the supply performance of the economy remains severely impaired,” said the governor.

The SARB’s projection is now more in line with the International Monetary Fund’s (IMF) growth projection for South Africa.

The IMF announced that it expects South Africa’s real GDP growth to decelerate to 0.1% in 2023, mainly due to the effects of load-shedding.

However, contrary to Fitch, the SARB identified upside risks to growth following 2023 and increased its projections for 2024 from 0.7% to 1.0% and, for 2025, from 1.0% to 1.1%.

The revision comes in light of news that South Africa’s GDP contracted more than expected in the fourth quarter of 2022, shrinking 1.3% in the three months through December.