The African Development Bank (AfDB) has slashed South Africa’s economic growth for 2023 as a result of sluggish activity, rising interest rates as well as the impact of the ongoing energy crisis.
The AfDB yesterday said that gross domestic product (GDP) in South Africa should weaken further to 0.2% in 2023 reflecting weaker activity in major trading partners.
The bank also flagged further domestic policy tightening as well as structural bottlenecks in particular electricity supply shortages, which restrain industrial output and activity in other sectors.
The AfDB’s growth forecast is slightly lower than the 0.4% estimated by the South African Reserve Bank last week, 2023, though it warned that energy and logistical constraints remained binding on the growth outlook.
However, the AfDB lead economist Ferdinand Bakoup said growth should pick up to a still sluggish level at 1.5% in 2024.
“Overall, South Africa is the worst performer in the southern Africa region over 2023-2024,” Bakoup said.
“Civil unrests, natural disasters such as flood and droughts, local infestations, renewed anti-immigrant protests, a cost-of-living crisis, and the electricity crisis will all hamper economic growth and social cohesion.”
The AfDB yesterday released its Southern Africa Economic Outlook 2023 for 13 economies making up the region.
The bank said that given its weight in the regional economy, South Africa was dragging down overall regional growth.
It said the outlook for 2023 and 2024 was uncertain because the Southern Africa region remained subject to significant downside risks.
The external outlook is clouded with many risks. More persistent global inflation could prompt significantly stricter monetary policy tightening with substantial spillovers effect in the region.
It warned that an abrupt growth slowdown in China or a protracted war in Ukraine could weaken global demand for mineral and metal commodities, exacerbating the growth outlook of resource-rich countries.
Likewise, it said an intensification of the war in Ukraine and geopolitical tensions could spur food and energy prices, exacerbating the fragility of oil and food importing countries.
The domestic front was also exposed to sizeable downside risks and the socio-political context could cloud the economic outlook.
The bank said the Southern Africa region’s medium-term outlook remained modest as the economic performance compared poorly to the other African sub-regions, reflecting subdued performance in South Africa.
The region’s GDP growth is very dependent on the performance of the South Africa economy, given its overwhelming weight in regional GDP, which was 60% percent of Southern Africa GDP in 2022.
In 2022, South Africa’s GDP growth slowed markedly to an estimated 2%, dragging down the average for the region.
This resulted in the Southern Africa region’s GDP growth barely reaching 2.7% in 2022, largely a reflection of sluggish performance in South Africa where civil unrest, natural disasters compounded the electricity crisis to hamper economic growth.
Bakoup said further slowdown of growth in the region was expected in 2023 at 1.6%, followed by a slight improvement at 2.7% in 2024.
“Subdued regional performance is linked to the lingering political and structural issues in South Africa, which drag down regional growth, as well as the impacts of Russia’ invasion in Ukraine, which continue to put pressure on energy and food prices,” he said.
“Projected growth varies across Southern Africa countries, reflecting in part a contrasting trend in the terms of trade and domestic structural issues.’
“In 2024, the region’s growth rate should slightly pick-up, though still posting the worst growth performance across the five sub-regions. Nevertheless, the regional growth rate is improving while it is expected to decrease in the oil exporting countries.”
Meanwhile, the AfDB report also warned that climate change impacts on Southern Africa were increasing in both intensity and frequency, leading to higher physical and transition risks.
It said Southern Africa’s financial needs for climate actions stood at $1 trillion (R18trl), with an annual requirement of $90.3 billion for 2020-2030.
However, the average annual climate finance flows to Southern Africa stands at $6.2bn, representing 6.9%, also meaning that Southern Africa received the least financial flows relative to the financial needs, compared to other African regions in the continent.
“There is an urgent and increasing need for large-scale investment in climate action. The role of the private sector as a partner to make the green growth transition and to close the adaptation finance gap will be crucial,” read the report.
“The greater political commitment toward climate and green growth,and the existing green policy frameworks in some countries in the region, are clear signals for the private sector to search for optimum risk/return climate-related portfolios.”