South Africa's tough recovery path


Last year was quite challenging, on all fronts, with Covid-19 spreading rapidly across the globe, bringing the world to its knees. While there were so many unknowns then, now we can see the light at the end of the tunnel. The prospect of a return to normal pre-pandemic life has been made possible by the development of several effective vaccines.

Vaccination rates differ significantly among countries, determined predominantly by access to vaccines.  In terms of vaccine rollouts, the UK and the US continue to lead the way, with more than 50% of their populations fully vaccinated and more than 60% at least received one dose. Among our peers, Brazil and India have made some progress. However, most developing economies have been lagging, with Africa and South Africa still having a long way to go. The pace of inoculation matters because it explains the rate of economic recovery in each country. Another key differentiator among nations has been the degree of fiscal and monetary policy support offered to individuals and companies throughout the pandemic and resultant lockdowns. Despite these differences, the worst appears to be over for the global economy as a whole.


On the growth front, China rebounded significantly, surpassing its pre-pandemic levels. Robust exports volumes, particularly of PPE and other goods, and fixed investment spending towards their industrialisation and climate change drive have been key. The US also rebounded with vigour, with growth boosted by highly aggressive fiscal stimulus, accommodative monetary policy and the easing of lockdown restrictions earlier in the pandemic than its peers, limiting its impact on the services sector. The recovery in the UK and Eurozone have been more moderate due to multiple waves of the virus and associated tighter restrictions on economic activity. Continued government support and progress on vaccinations will enable a normalisation across economies.


The global recovery will therefore support growth in South Africa. The rebound in demand for commodities, particularly from our major trading partners (Europe and China), significantly increased South African exports. Exports are expected to remain the key driver of growth this year. Household spending, which accounts for around 60% of GDP, is also forecast to support growth as income growth edged higher from last year's extreme lows. However, fixed investment spending will struggle to gain meaningful traction as businesses remain hesitant to embark on new projects.  For most companies, the focus will remain on restoring profits by cutting costs and strengthening balance sheets. In this climate, few firms are likely to consider expanding capacity. Looking at growth by sector, high-contact sectors like restaurants and accommodation remain vulnerable, while manufacturing and mining will benefit from increased global demand.

The economy started the year with resilience, shrugging off the damage done by the 2nd wave of Covid-infections and the associated lockdown of late December through to the end of January. At the time, GDP growth of 5% for 2021 seemed plausible (from a 7% contraction in 2020). However, the 3rd wave of infections, another tightening in restrictions and the onset of heavy load-shedding over May and June reduced our GDP forecast to 4.6%.  Then, South Africa was subjected to another blow caused by the violent unrest and looting in KZN and parts of Gauteng, which shaved off a further 0.4 percentage points from our growth projections, taking it down to 4.2%. We expected growth to return to trend of 2% and 1.6% in 2022 and 2023, respectively. We have factored in possible further waves of infections caused by the unrest and new variants, unreliable electricity supply and a relatively slow-moving vaccine rollout, reaching herd immunity in late-2022 or early-2023.

Even though the economy will recover from last year’s low base, the pace is likely to moderate, placing little pressure on existing capacity. Therefore, consumer inflation is expected to average around 4.4% over the forecast period. We expected interest rates to remain unchanged for the rest of this year, followed by hikes totalling 100 basis points (or 1%) in 2022. After that, interest rates are likely to remain unchanged for an extended period.

The rand is expected to come under greater pressure in the months ahead, as global investors turn increasingly risk-averse in response to the normalisation of US monetary policies. The rand is forecast to average around R14.70 to the USD in 2021, before depreciating to R15.17/USD in 2022 and R15.98/USD in 2023.

The labour market took a massive knock, with the economy shedding 5.1 million jobs in 2020. Looking ahead, we suspect it will take close to five years to recover these jobs fully. This year's big chunk of 840 000 new jobs will come from the government sector, followed by trade and finance. Employment is forecast to increase at a faster pace in 2022 and 2023, in line with our growth trajectory.

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