Amid travel bans, higher inflationary pressures, poor jobs, lower vaccination rates and electricity supply constraints, leading data and analytics firm GlobalData notes that the outlook for South Africa’s immediate economic growth are bleak. The company has revised its GDP growth rate forecast for South Africa in 2022 to 2.1%, down from the December 2021 forecast, which called for growth of 2.5%.
Gargi Rao, economic research analyst at GlobalData, comments: “Despite recording four consecutive quarters of growth between Q3 2020 and Q2 2021, civil unrest in July, tightening COVID-19 restrictions and supply chain disruptions triggered a contraction. of South Africa’s economic growth in the third quarter of 2021. Real GDP growth contracted by 1.5% (quarter-on-quarter) in Q3 2021, compared to 1.2% in Q2 2021, according to Statistics South Africa. Now in 2022, the country’s economy is impacted by the tightening of restrictions and constraints.”
South Africa has been hit with even more travel restrictions in 2022 – around 91 countries currently ban travel to the country, compared to the 60 that first applied travel restrictions in mid-2021. These strict restrictions continue to hurt the growth prospects of the travel and tourism industry.
Ralph Hollister, travel and tourism analyst at GlobalData, comments: “International tourism provided a strong contribution to South Africa’s GDP, prior to the pandemic. We expect international arrivals not to reach pre-pandemic levels until 2024 in South Africa, which will further slow economic recovery”.
African countries continue to have low immunization rates compared to other regions. As of January 24, 2022, South Africa has fully immunized only 27.9% of its population, compared to other BRICS* countries such as Brazil (70.4%), China (87.6% ) and India (49.8%).
Bishal Bhandari, epidemiologist at GlobalData, comments: “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. Today, the Low vaccination rate has made South Africa vulnerable to COVID -19 and its multiple variants.”
According to Statistics South Africa, the country’s manufacturing activity fell by 8.9% (year-on-year) in October 2021, compared to October 2020.
Rao comments: “Input prices for manufacturers have risen sharply relative to output prices, putting downward pressure on production. the national minimum wage may increase unemployment due to a spike in 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 declined since August 2021. Additionally, with a moderate 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 also led to food shortages , leading to lower household consumption spending 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 Statistics South Africa. Rising production costs and slowing economic growth could increase the risk of short-term stagflation.
Rao notes: “In the near term, borrowing costs for businesses and consumers are expected to rise due to inflationary pressures. With the Reserve Bank raising key rates to rein in inflation, growth prospects could slow for businesses. This year.
“South Africa must critically formulate and implement policies that promote inclusive economic growth and job creation. As 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 can boost consumer and business confidence.”
* BRICS = Brazil, Russia, India, China and South Africa