South Africa’s economic outlook is improving and less gloomy than at the beginning of the year, with the country likely to avoid a recession in 2023.
Sub-Saharan economist at Bank of America (BofA), Tatonga Rusike, told CNBC Africa that he has been pleasantly surprised by the resilience of the South African economy.
At the beginning of the year, BofA expected the country’s economy to stagnate and produce zero economic growth.
However, South Africa’s economy has posted positive GDP growth for consecutive quarters, growing 0.4% in the first quarter and 0.6% in the second quarter.
“I think we had peak pessimism in May with stage 6 load-shedding, which has improved slightly, helping the mining and manufacturing sectors,” Rusike said.
The local economy has proven to be more resilient than BofA expected, with companies performing well considering the extremely difficult macroeconomic environment in which they operate.
“I think we can safely say the economic outlook is less gloomy than it was at the beginning of 2023.”
Private sector investment is still strong, mainly thanks to these companies spending to make their businesses more resilient and installing backup or alternative energy generation.
But, “you now see the consumer is under real pressure. Yes, there was good news, but there are still major concerns remain going forward.”
The South African economy has two major constraints – inconsistent electricity supply and logistical inefficiencies.
In particular, the collapse of Transnet has resulted in bulk commodities such as coal and iron ore not making it to ports for export.
The Minerals Council of South Africa estimated that poorly run ports and freight-rail lines may have cost the country R150 billion rand in exports last year.
Transnet’s collapse is set to cost the country R1 billion a day in economic output, equivalent to 4.9% of annual GDP or R353 billion, according to the GAIN Group.
Rusike said this would negatively impact the country’s finances and current account balance, which has swung to a deficit so far this year.
The rand will likely weaken on the back of this, putting further pressure on the South African economy.
Combined with high fuel price increases, the country will likely experience inflation shocks in the rest of 2023.