Reserve Bank increases South African economic growth forecast

The South African Reserve Bank (SARB) increased its forecasted economic growth for South Africa to 0.7% from 0.4%.

This improvement came as the Monetary Policy Committee (MPC) voted to pause interest rate hikes for a second time as South Africa’s inflation has cooled over recent months. 

Despite some reprieve in the winter months, load-shedding has increased, and prices for commodity exports continue to weaken. 

In the near term, stronger El Niño conditions threaten agricultural output, while global climatic events present additional risks. 

Energy and logistical constraints remain binding on the growth outlook, limiting economic activity and increasing the costs of doing business. 

From a demand perspective, spending by firms, households, public corporations, and general government remains positive on an annual basis. 

Although credit growth to households and corporations has slowed in recent months, it has increased in real terms compared to last year. The forecast for investment for the year is revised up to 7.7% (from 4.4%). 

These supply and demand trends enabled an upward revision to the Reserve Bank’s forecast for GDP growth to 0.7%, from the July figure of 0.4%. 

Our GDP growth forecast for 2024 and 2025 is unchanged from the previous meeting, at 1.0% and 1.1%, respectively.

While households and firms exhibit some resilience, economic growth has been volatile and highly sensitive to new shocks. 

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

Since its last meeting, the SARB said near-term prospects for the global economy are broadly unchanged. 

However, the longer-term economic outlook is clouded by persistent inflation risks, the negative effects of climate change, and ongoing geopolitical tensions.

Higher-for-longer policy rates and extended fiscal positions are expected to weigh on growth prospects for some time, the Reserve Bank said.  

Worryingly for South Africa, China’s growth performance is expected to remain modest, with little benefit to commodity prices. 

Considering these and other factors, the SARB’s forecast for global growth in 2023 is broadly unchanged at 2.6% (from 2.5%) and remains at 2.7% in 2024.