South Africa unlikely to see solid economic growth in short term, says GlobalData

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Amid travel bans, higher inflationary pressures, high unemployment rates, lower vaccination rates and power supply constraints, analyst firm GlobalData believes the outlook for immediate economic growth of South Africa are dark.

The company has revised its gross domestic product (GDP) growth rate forecast for South Africa in 2022 to 2.1%, down from a forecast of 2.5% made in December 2021.

Economic Research Analyst Gargi Rao explains that, despite recording four consecutive quarters of growth between the third quarter of 2020 and the second quarter of 2021, the civil unrest in July, the sometimes stricter restrictions of Covid-19 and the continued disruptions of the chain of supply triggered a contraction in South Africa’s economic growth in the third quarter of 2021.

According to Statistics South Africa (Stats SA), real GDP growth contracted by 1.5% quarter on quarter in the third quarter of 2021, compared to 1.2% in the second quarter of 2021.

This year, the country’s economy is being hit by tighter restrictions and constraints, according to GlobalData.

South Africa has been hit with even more travel restrictions this year – around 91 countries currently have a travel ban on South Africa, compared to the 60 that first applied travel restrictions in mid- 2021.

“Such strict restrictions continue to discourage growth prospects for the travel and tourism industry,” comments GlobalData.

Travel and tourism analyst Ralph Hollister notes that international tourism made a solid contribution to South Africa’s GDP before the pandemic. “We expect international arrivals not to reach pre-pandemic levels until 2024 in South Africa, further slowing economic recovery.”

Additionally, African countries continue to have low immunization rates compared to other regions. As of January 24, South Africa had fully vaccinated only 27.9% of its population, compared to Brazil (70.4%), China (87.6%) and India (49.8%) ).

Epidemiologist Bishal Bhandari notes that historically vaccine hesitancy has always been very high in South Africa and this is not unique to the Covid-19 vaccine.

“The low uptake of this vaccine is therefore regrettable, but not unexpected. Now the low vaccination rate has made South Africa vulnerable to Covid-19 and its multiple variants,” he adds.

COST PRESSURE

Stats SA noted a fall in manufacturing activity of 8.9% year-on-year in October 2021, compared to October 2020.

Rao comments that input prices for manufacturers have risen sharply, relative to product prices, which has resulted in downward pressure on production.

The South African government’s decision to increase the national minimum wage has also increased production costs for businesses.

Due to weaker sentiment among investors and businesses over power shortages, rising input costs and low vaccination rates, business confidence has eroded since August 2021.

Additionally, with sluggish demand, retail growth slowed from 3.5% in September 2021 to 1.5% in October 2021. Looting and closure of retailers in KwaZulu-Natal during civil unrest have also led to food shortages, which led to a drop in household consumption. expenditure in the third quarter of 2021.

Soaring fuel prices and transport costs have squeezed the overall profits of South African companies.

In October 2021, the consumer price index climbed to 5.5%, the highest in more than four and a half years, according to Stats SA. Rising production costs and slowing economic growth could increase the risk of short-term stagflation.

Rao says borrowing costs for businesses and consumers are likely to rise due to near-term inflationary pressures.

With the Reserve Bank raising key rates to keep inflation in check, growth prospects could slow for businesses this year.

“South Africa must critically formulate and implement policies that promote inclusive economic growth and job creation.

“While short-term disruptions from supply chain issues and travel bans are inevitable, governments must step up the vaccination campaign this year, as well as introduce economic reforms aimed at long-term growth that will can boost consumer and business confidence,” he suggests.

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