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    Home»Business Matters»South Africa growth risks skewed to downside – economists

    South Africa growth risks skewed to downside – economists

    Business Matters By Temitope N.Aug 22, 2021No Comments3 Mins Read
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    The risks to South Africa’s economic growth outlook are skewed more to the downside, according to economists polled by Reuters who cited disruptions from new coronavirus variants and extended softer commodity prices as potential challenges.

    Image of Mall of Africa Front View located in South Africa
    Image of Mall of Africa Front View located in South Africa

    Forecasts collected in the past week suggested economic growth would slow next year to a median 2.4% from 4.3% this year, much the same as last month’s forecast.

    But a firm majority of economists – six of eight – who answered an extra question said their GDP forecast risks were skewed more to the downside in their medium-term outlook.

    This quarter the economy was expected to contract 2.3% on a seasonally adjusted and annualised basis following unrest that disrupted businesses. The unrest probably cost around 50 billion rand ($3.3 billion), according to South Africa’s national Treasury.

    Tight consumer wallets and growing inequality in Africa’s most industrialised economy have meant South Africans have had little to do with boosting growth or inflation, and growth has instead been a function of bumper commodity prices.

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    However, oil dropped below $66 a barrel on Thursday, its lowest since May, pressured by concerns about weaker demand as COVID-19 cases rise abroad and also due to a surprise increase in U.S. gasoline inventories.

    Metal prices have also generally been softer in past months.

    Still, trade data in June showed the value of merchandise exports rose to an all-time high. The current account is expected to register a 2.8% of GDP surplus this year before it narrows to a 0.4% of GDP deficit next year.

    Meanwhile, South Africa has recorded the most coronavirus infections and deaths on the African continent but has so far only fully vaccinated less than 8% of its population of 60 million.

    Consumer price index (CPI) inflation dipped to 4.6% in July, suggesting price pressures have peaked after pent-up demand sent prices to a 30-month high of 5.2% in May.

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    That is true to the transitory trend that most economists had predicted due to an expected correction in commodity prices.

    “South Africa’s weak economic recovery will keep core price pressures subdued and the headline inflation rate soft,” Capital Economics wrote in a note.

    Inflation is forecast to average 4.4% through 2023, well within the South African Reserve Bank’s comfort range of 3%-6%. The central bank is forecast to raise rates by 25 basis points three times next year, with a pause in May, the poll showed.

    South Africa’s negative real rates – the gap between the CPI rate above the nominal repo rate since the beginning of last quarter – are expected to start narrowing by end-2022.

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