SOUTH Africa’s economic growth is now projected to rebound to pre-pandemic levels in late 2022, a year earlier than previously estimated in February, because of stronger-than-expected growth outcomes in the first half of 2021.
In the first quarter of 2021, real gross domestic product (GDP) increased at an annualised rate of 4.6 percent following an increase of 5.8 percent in the fourth quarter of 2020.
Finance Minister Enoch Godongwana said yesterday that this forecast was largely the result of global demand, higher commodity prices and the easing of Covid-19 lockdown restrictions.
Tabling his maiden Medium-Term Budget Policy Statement (MTBPS) in Parliament yesterday, Godongwana said these factors had helped boost domestic economic activity to recover more rapidly than anticipated in the 2021 Budget.
“In the first half of 2021, the South African economy recovered more quickly than expected, reflecting less stringent Covid-19 restrictions, along with lower interest rates, support from strong international demand and higher commodity prices,” Godongwana said.
The country’s GDP is expected to grow by 5.1 percent in 2021 on low base effects, up from a 3.3 percent estimated in February, and following a 6.4 percent contraction in 2020.
Real GDP growth is expected to moderate to 1.8 percent in 2022, 1.6 percent in 2023, and 1.7 percent in 2024, a rate that is too low to meet the country’s development needs.
“Over the next three years the growth of the local economy is expected to average 1.7 percent, reflecting some structural weaknesses such as inadequate electricity supply,” Godongwana said.
“The strength of South Africa’s economic recovery will also depend on the roll-out of vaccines. A higher take-up of vaccines will reduce the risks of future waves of the pandemic and associated disruptions to economic activity.
“The speed and scale of vaccination, therefore, is of the essence – there should be no room for hesitancy.”
In terms of the National Treasury’s Budget Review documents, South Africa’s economic sectors are expected to perform unevenly as they face different headwinds.
The Treasury expects that higher global prices for agricultural commodities, as well as mining production growth, will moderate around current levels over the medium term.
In manufacturing, it said electricity disruptions, raw material shortages and rising input costs were expected to continue to limit output in the short to medium term.
It said inadequate electricity supply would remain the main binding constraint on economic recovery in the near term.
Further lockdowns could also hamper growth in transport, communications and the construction industries as restrictions had lowered confidence severely.
Further sovereign credit ratings downgrades also remained a systemic risk for the finance sector because domestic banks increased their share of government debt in 2020.
Godongwana also said risks to the domestic growth outlook remained elevated, reflecting continued uncertainty in both the global and domestic economy.
Persistent inflation in the US and other developed economies has been flagged as likely to result in a hike in interest rates as many developing economies have begun to reduce support as fiscal space narrows.
At 5 percent, inflation in South Africa is currently edging towards the top end of the SA Reserve Bank’s target band of 3 to 6 percent per annum.
“Considering the economic outlook and the risks associated with it, it is critical that we accelerate economic reforms for long-run growth,” Godongwana said.
“These reforms should focus on improving competitiveness, productivity, investment and employment.”
BUSINESS REPORT ONLINE