Hope for growth in difficult times
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JOHANNESBURG - THE South African Reserve Bank (SARB) is likely to maintain the country’s optimistic growth forecast for 2021 after gross domestic product (GDP) rebounded in the fourth quarter of 2020.
Data from Statistics SA this week showed that real GDP rose at an annualised rate of 6.3 percent in the fourth quarter of 2020 on further easing of Covid-19 lockdown restrictions.
The recovery was broad-based on both the production and expenditure side as the easing of Covid-19 restrictions supported improvements in consumer spending.
Consensus is for 3.5 percent GDP growth this year, with SARB forecasting 3.6 percent growth while the National Treasury’s estimate 3.3 percent recovery.
Real economic growth contracted 7 percent last year from 0.2 percent growth in 2019, which was better than market expectations but still set a low base for the 2021 rebound.
Alexander Forbes chief economist Isaah Mhlanga said while the threat of the Covid-19 pandemic remained, positive news on vaccine developments would encourage recovery.
Mhlanga said major downside risks for the 2021 real growth rebound would come from load shedding as well as a third and potentially fourth wave of Covid-19 infections.
“Following a significant 7 percent contraction in 2020, we forecast a strong rebound in real GDP in 2021 of 3.5 percent,” Mhlanga said.
“We believe that the recovery in real GDP will revert to pre-pandemic growth levels by 2024 due to power supply shortages, persistent policy uncertainty and subdued investment growth.”
The central bank will later this month hold its second Monetary Policy Committee meeting for the year to consider interest rates as inflation remains on the lower end of the target band.
With the Quarterly Projection Model (QPM) pricing two hikes this year, economists expect the tone for interest rates to become even more hawkish.
Bank of America (BofA) economic strategist for sub-Saharan Africa Rukayat Yusuf there was optimism about global recovery of commodities prices and easing restrictions this year.
Yusuf said BofA had raised its 2021 GDP growth forecast to 3.8 percent from 2.9 percent, while maintaining its 2022 outlook at 2 percent.
“This reflects global growth and commodity revisions; easing domestic restrictions and a better Q4 print, bringing the 2020 recession to -7 percent,” Yusuf said.
“That said, output is only likely to return to pre-Covid levels by late 2023 with risks from electricity shortages, a weak jobs recovery, slow reforms and vaccine/third wave concerns.”
S&P Global sovereign ratings director Ravi Bhatia said South Africa’s economy would only reach pre-pandemic levels of growth in 2023 on a slow reform programme.
Bhatia said economic growth had been very disappointing in much of the last decade, and 2020 marked the sixth consecutive year of real contraction on a per capita basis.
“In the longer term, planned growth-enhancing structural reforms in such areas as power and telecommunications may spur improving incomes,” Bhatia said.
“Nonetheless, the implementation of planned reforms have, in the past, been slow and have failed to deliver substantial boost to growth.”