Professional services firm PwC maintains in its latest economic outlook that the main factors influencing South Africa’s economy in 2022 are likely to be load-shedding, lockdown restrictions, municipal coalitions and fiscal spending, global economic growth and supply chain challenges.
The firm expects South Africa’s gross domestic product (GDP) to grow by between 1.5% and 3% in 2022, but the pace of jobs recovery continues to be slow, the debt bill high and the outlook for the year is “uncertain at best”.
This follows what PwC expects to be a 3.8% growth rate for this year, following a 6.4% real GDP decline in 2020.
The National Treasury expects average real GDP growth of 1.7% a year for 2022 to 2024.
PwC expects the global economy to grow by 4.5% in 2022, which it says bodes well for export-oriented industries, but points out that Europe has been experiencing a resurgence of Covid-19 infections and other countries also face risks of extended lockdowns.
This while the international supply chain crisis is far from over. PwC explains that elevated inflation in major economies is partly caused by strong demand and supply constraints across many industries.
Locally, the cost of fuel has many upside risks looming.
With regard to the influence of municipal coalitions on the economy, PwC says there are delays in finalising coalition councils following the November municipal elections, where 66 out of 278 municipalities did not have a majority party to govern them.
The risk of the fiscal deficit also remains, equal to 7.8% of GDP this year, but at least down from an estimate of 9.3% announced in February. It is, however, a good sign that government plans on cutting consolidated spending by 2.5% in 2022/23 to R2.075-trillion, which PwC says is unprecedented for the African National Congress government.
Inflation-adjusted fiscal spending will be cut by 2.5% in 2022/23, which should help to improve the fiscal deficit.
On the policy side, the South African Reserve Bank (SARB) is planning to increase the repo rate to pre-pandemic levels by mid-2024. The Monetary Policy Committee has given guidance that the repo rate should rise to 5.17% by December 2022, increasing to 6.04% by the close of 2023 and 6.75% at end-2024.
An upward trend in lending rates will be much slower compared to the pace of monetary policy easing seen at the start of the pandemic. The SARB reduced the repo rate by three percentage points in the seven months ending July 2020 but it will likely take at least two-and-a-half years to again increase interest rates by 300 basis points.
Moreover, based on current vaccination estimates, PwC expects some form of Covid-19 lockdown restrictions in South Africa until deep into 2022, as it will take at least five months for government to reach its targeted 70% vaccination rate – compared with the current rate of 24%.
Risks related to Covid-19 include the emergence of the Omicron variant and the resultant international travel bans.
And naturally, PwC states, load-shedding will again shave several percentage points off GDP growth in 2022, at similar levels experienced in 2020 and 2021.
Other risks to the South African economy include it not having reduced its energy intensity in 2020, and PwC believes that, if the country takes too long to react to environmental changes, it poses higher physical and transitional risks associated with climate change.
While the US, European Union and the UK pledged to mobilise an initial amount of R130-million over three to five years to decarbonise South Africa’s energy systems, Eskom is already more than R400-billion in debt and cannot take in more in transition finance.
Additionally, PwC highlights long-term economic growth challenges to South Africa being expropriation without compensation, corruption, crime risks, low skills level, dependence on imports and the dependence on fossil fuels for electricity generation.