The rand is forecast to average R16.90 against the dollar this year, under professional services firm PwC's baseline scenario, compared with a mean of R16.37 to the dollar in 2022.

PwC also expects consumer price inflation to moderate to about 5% year-on-year in the fourth quarter of this year from 7% year-on-year in the fourth quarter of 2022.

“Globally, the political and economic ripple effects of decades-high inflation and increased energy costs will add to household financial stress and could stoke social discontent and political instability in many countries. This, in turn, reduces appetite for emerging market assets, like the rand,” the firm states.

The firm's calendar year baseline scenario expects inflation to average 5.4% this year from a mean of 6.8% in 2022. Additionally, interest rate hikes are also nearing an end, with a possibility of the repo rate starting to decline from the fourth quarter of this year.

“Concern remains about the elevated level of price inflation, especially from a supply chain perspective. However, producer price inflation peaked at 18% year-on-year in July 2022 and, following declines in the subsequent months, is now seen as being on a downward trend, owing to easing supply chain cost pressures, as well as the impact of recently tighter monetary policy,” the company said.

However, economic growth is expected to continue trending lower this year to just 1.7% after it slowed to an estimated 2% in 2022. Growth was below potential in 2022 mainly owing to ongoing load-shedding and is expected to continue to underperform in 2023 as a result of the expected regular implementation of rolling blackouts.

“On a positive note, behavioural change has seen the South African public adapt to and mitigate the impact of load-shedding. For example, in 2022, the country imported more than R5-billion worth of solar panels, up from around R4-billion in the preceding year.

“We estimate that these panels provide an additional 2 000 MW of generating capacity during 2023. Based on varying usage patterns, these off-grid solar panels could be saving the rest of the country from an additional stage of load-shedding at any given time,” PwC points out.

“Many large companies and wealthy households have been able to adapt to load-shedding by acquiring off-grid power solutions like solar power or diesel generators. While this has made the economy more resilient to the energy challenges, it does not capture the economic pain experienced by small businesses, non-governmental organisations and the majority of households that cannot afford off-grid alternatives,” said PwC South Africa senior economist Christie Viljoen.

“Further, while small businesses have a smaller overall impact on gross domestic product compared to large corporations, they play a large role in employment, food security and community stability. These small businesses are seeing production downtime, increased supply chain costs, reduced operating hours and increased security risks owing to the lights going out.”

Meanwhile, during the first three quarters of 2022, South Africa’s total non-agricultural employment increased by a net 1.2-million, reaching 15.8-million jobs in the third quarter. This, in turn, was the country’s highest non-farm employment number since the outbreak of Covid-19.

However, South Africa’s official and youth unemployment rates will remain among the highest in the world, with associated social risks, the company says, noting that this is based on its recent 'Rebuilding social cohesion is essential to South Africa’s economic development' report.

Further, the expected growth in employment over the next decade, at an average of 1.2% a year, will be slower than the anticipated labour force growth rate of 1.5% a year.

Therefore, following last year’s labour market recovery, the unemployment rate is estimated to have reached a turning point in 2022 to 2023 and will slowly rise in the years ahead, the company warned.

Additionally, South Africa’s social and climate challenges are interlinked, it says.

“As noted in our recent report 'South Africa’s just energy transition: moving from planning to action in 2023', this year is anticipated to be a period of much greater climate action in South Africa. The government recently launched its Just Energy Transition Investment Plan (JET IP) at the twenty-seventh climate conference United Nations Conference of the Parties (COP27) for an initial period of five years from 2023 to 2027,” PwC said.

“In the immediate future, arrangements for JET IP implementation will start in February. The implementation plan will be a product of efforts across government, civil society, trade unions and the private sector. The plan will include relevant timelines and will rely on existing South African institutions and systems, augmented by adopting both local and international best practice across various disciplines.”

“From our interactions with government and business leaders at COP27, it is clear that evidence of decarbonisation is a powerful differentiator for businesses in an environment where having a carbon dioxide emissions target is merely a licence to operate,” says PwC Africa environmental, social and governance leader Lullu Krugel.

“Leading organisations are generating value by reimagining how their capabilities will be deployed in a post-carbon world and appealing to sustainability-aware consumers, investors, staff and other stakeholders via sustainable transformations. Climate resilience is a powerful source of protection for South African companies against disruption and value loss,” she adds.