SA Reserve Bank increases GDP outlook

The South African Reserve Bank (SARB) increased its outlook for South Africa’s GDP growth to 0.4% from the 0.3% it forecasted in May. 

In its statement, the MPC said that electricity and logistical constraints remain binding on the economy and raise business costs while limiting economic activity. 

SARB’s increased growth forecast comes on the back of the disposable income of households increasing marginally, investment increasing, and a more beneficial balance of trade. 

Spending from private and public companies remains positive, while general government spending has also grown. 

The Bank’s forecast for GDP growth in 2024 and 2025 remains unchanged from the May meeting, at 1.0% and 1.1%, respectively. 

The MPC warned that South Africa’s economy is highly sensitive to external shocks. 

An improvement in logistics performance and a sustained reduction in load-shedding, or greater supply from alternative sources, would significantly increase economic growth. 

The SARB’s forecast for global growth was also revised upwards from 2.5% to 2.5%. Its forecast for 2024 remains unchanged at 2.7%. 

Global interest rates will remain higher for longer to ensure that inflation retreats to within the targets of central banks. 

The outlook for economic growth in the world and South Africa is volatile and may change significantly in the short term. 

Fitch forecasts no growth

Rating agency Fitch last week forecasted zero real GDP growth in 2023, against 1.9% growth in 2022, due to severe power shortages in recent months that are likely to weigh heavily on GDP.

This should be followed by a modest recovery to 0.9% growth in 2024 and 1.3% in 2025.

Strong investment in power generation after the deregulation of the sector should moderately improve the energy supply from 2024 and support the recovery.

However, real GDP growth will remain constrained by a poorly functioning transportation sector that drags on exports.

Commenting on the Fitch announcement, National Treasury said the country is implementing urgent measures to reduce load-shedding in the short term.

It is also transforming the South African electricity sector through market reforms to achieve long-term energy security.

“Over the medium‐term, the fiscal strategy aims to achieve fiscal sustainability by reducing the budget deficit and stabilising the debt-to-GDP ratio,” National Treasury said.

“On‐budget allocations for infrastructure and other policy priorities and maintaining a sustainable fiscal stance will support economic growth.”