Jeff Schultz, senior economist at BNP Paribas South Africa, said they expect the country’s growth to be far below consensus.
The Reserve Bank forecasts 1.4% economic growth in 2023, while Investec predicts the country’s GDP to grow at just above 1.0% next year.
Schultz is more bearish, saying they see additional challenges for South Africa’s acute structural growth weaknesses in 2023 as cyclical global growth headwinds gather.
“Our well-below-consensus 0.2% GDP growth estimate for 2023 reflects a weaker net trade and consumption outlook alongside a heavily crimped short-term potential growth ceiling,” he said.
The low GDP growth estimate is partly driven by the gloomy global economy, including shallow recessions for some of South Africa’s key trading partners – Europe and the US.
Load-shedding will also take its toll on the South African economy.
“Our long-held expectation of more acute energy supply challenges continues to materialise,” he said.
“There was 4.5 times the number of days of electricity supply cuts in 2022 as in 2021 – and 2023 looks even worse.”
They further expect inflation to remain sticky for longer as the lagged effects of higher wages and rebounding service prices eat into disposable incomes, forcing more action out of the SARB.
BNP Paribas South Africa increased its 2023 terminal policy rate by 25bp to 7.75%, which they think will be reached by March.
“The central bank will cut rates only from Q2 2024, in our view,” Schultz said.
He said as higher inflation and efficiency gains should keep tax buoyancy at least at parity with nominal GDP, the Treasury might even achieve a small primary surplus by end-FY2022/23.
Softer exports and rising imports related to large renewable energy projects are likely to keep the current account in deficit, creating headwinds for a lower carrying ZAR.
“We maintain that better fiscal and helpful technicals should keep supporting SAGBs and asset swap spread compression in 2023,” he said.
Schultz added that the ANC’s elective conference suggests the government will double down on economic reform rather than opt for populist policy measures ahead of next year’s election.
“Black swan risks remain, however,” he cautioned.