South Africa’s economy has bounced back to pre-Covid-19 output levels - but tough times still lie ahead as economists anticipate further interest rate and petrol price hikes in the coming months.
PwC’s latest Economic Outlook Report released on Thursday highlighted that public and private services sectors had been the first industries to return to pre-pandemic levels.
South Africa’s GDP contracted by 6.4% during pandemic-hit 2020 and recorded a bounce-back growth rate of 4.9% in 2021 as the world emerged from lockdowns.
“The size of the 2020 recession could have been smaller if it was not also for the adverse impact of electricity load-shedding. We estimate that the decline in GDP could have been closer to 3.5% in the absence of power blackouts,” PwC noted.
However, despite the 25% rise in load-shedding – Eskom shed 1 054 gigawatt hours (GWh) from January to April 2022 - economic activity increased at a healthy pace during the first quarter.
Stats SA reported in early June that real GDP had increased by 1.9% quarter-on-quarter (q-o-q) (on a seasonally adjusted and annualised basis) compared to expectations of about 1.2% q-o-q. All ten major industries, except for mining, recorded growth, with manufacturing contributing 0.6 percentage points to the overall growth number. The volume of goods produced in factories increased by 4.7% q-o-q during 2022Q1, with the Absa Purchasing Managers’ Index (PMI) March 2022 report reflecting improvements in new sales orders. Export orders remained positive and local demand benefited from the recovery in the tourism and hospitality sector.
“The better-than expected q-o-q growth during 2022Q1 resulted in the economy increasing by 3.0% year-on-year (y-o-y), which was also notably higher than a reading of around 1.8% y-o-y expected by economists. The good news is that the GDP growth seen in 2022Q1 returned the economy to its pre-pandemic size,” PwC said. Finance, real estate, business services sectors, and general government drove the recovery in total GDP but many industries are still lagging behind. Construction, for example, is lagging far behind due to weak investment spending levels.
The report noted that electricity load-shedding was the primary constraint on economic growth, which is forecast at 1.5% per year in the medium to long term.
However, the firm’s economists warned that tough times lay ahead for consumers due to rising interest rates and fuel prices. PwC forecasts that the SA Reserve Bank will increase interest rates by 50 basis points in July and again by 25 basis points in September.
The firm’s senior economist, Christie Viljoen, said the economy faced several challenges in the coming months.
“Our updated forecasts are more pessimistic about the economic outlook towards 2023 due to several headwinds, including pressure from geopolitical risk on the exchange rate, the near-term expiry of fuel tax breaks, and no improvement in the electricity load-shedding situation, amongst other challenges,” he said.
