Absa expects higher GDP growth, no more interest rate hikes

Absa recently upwardly revised its near-term GDP growth forecast for South Africa by 0.4 percentage points on the back of healthier-than-expected economic activity in the first half of this year.

In its South Africa Q3 2023 Quarterly Perspectives, Absa said it now forecasts real GDP growth of 0.7% in 2023.

The bank also expects the economy to grow by 1.6% in 2024 – 0.3 percentage points higher than previously forecast. 

Absa said that, despite the sharp escalation in load-shedding in H1 2023, economic activity in the period was healthier than expected. 

While electricity supply will continue to be a growth risk, the bank believes that ongoing efforts in private generation will make the economy more resilient over time. 

However, overall growth momentum will likely remain weak as weak business confidence constrains a generalised investment cycle, while household consumption growth will also be under pressure. 

The bank expects headline inflation to ease further but said uncertainty remains high. 

“We expect headline inflation to ease further, reaching 5.0% by December 2023 and averaging 4.8% in 2024, partly driven by further moderation in food and core inflation,” it said. 

“We believe the SARB’s hiking cycle has ended and that the next move will be down. We expect the SARB to cut rates from March next year.”

However, the bank said global interest rates are likely to remain higher for longer, and South Africa is gradually becoming a riskier investment amid weak growth and deteriorating public finances.

This leads Absa to expect a terminal repo rate of 7.50%, higher than its previous forecast of 7.00%. 

Regarding public finances, Absa now forecasts a revenue shortfall of R39 billion (previous forecast: R25 billion) in 2023/24 compared with the 2023 Budget target. 

Counting Eskom’s debt relief above the line, Absa expects a main budget deficit of 6.6% of GDP in 2023/24, up slightly from its previous forecast of 6.3%. 

“We continue to see risks to our baseline forecast as skewed to the downside.”