PwC’s baseline scenario for the country, according to its sixth South Africa Economic Outlook report for 2022, has deteriorated since the start of 2022 as a combination of local and international factors caused a weaker rand, higher consumer price inflation, a faster increase in interest rates, slower economic growth, and a continued rise in the unemployment rate.
For example, recent higher-than-expected inflation readings are expected to result in the South African Reserve Bank (SARB) increasing interest rates by 0,5 percentage points in July. We believe this will be followed by another 0,25 percentage points increase in September.
Lullu Krugel, chief economist at PwC South Africa, says: “The current outlook for the economy is not far removed from what a downside scenario looked like at the start of the year. Companies that worked with different forecast scenarios before the onset of the disruption caused by the Russian invasion of Ukraine, and who planned for this kind of downside situation, would have strategies in place halfway through 2022 to manage the deteriorated macroeconomic outlook.”
Electricity load-shedding is the primary constraint on South Africa’s economic growth process and we believe the country’s medium- to long-term potential growth is around 1,5% pa Most recently, Eskom shed 1 054 gigawatt hours (GWh) during January-April 2022. This started the year off with a 25% increase in average load-shedding intensity per month.
Christie Viljoen, senior economist at PwC South Africa, comments: “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.”
Key content in the latest edition includes:
* Geopolitics in Europe will continue to play a key role in the rand’s valuation.
* Two-month extension of fuel tax relief increases total benefit to R14-billion.
* South African Reserve Bank (SARB) is anticipated to revert to 25bps rate hikes after July.
* The level of output in the economy is back to pre-Covid levels.
* A positive jobs outlook this year following many resignations in 2021.
The report and associated projections are updated on a monthly basis — though revisions could occur more frequently based on major economic data releases or key influential events.