Economic growth in the next five years could average 2.2% – nearly four times higher than the 0.6% average of the past five years – according to Bureau for Economic Research (BER) chief economist Hugo Pienaar.
“In the short term we still have major headwinds, with the US entering a recession this year due to the regional banking turmoil that has already led to tighter lending conditions. Also, the recovery in China is fuelled by services, so commodity prices, except gold, are down significantly since last year,” he said yesterday.
“The good news is that several headwinds that were particular to South Africa, such as the July, 2021 unrest; the April, 2022 floods; and the Transnet strike in October, 2022 are not expected to recur, so that’s why we are not forecasting that South Africa will not enter a technical recession this year, though growth will be subdued at only 0.2%,” Pienaar said.
On a quarterly basis, the economy has grown by 20.5% since bottoming in the second quarter of 2020, which includes the May, 2020 turning point. But it endured two quarterly contractions in the second and fourth quarters of 2022.
Many economists expect the first quarter in 2023 to show another quarterly contraction, but Pienaar believes the recovery in the transport and financial services sector would result in a small quarterly expansion.
In the fourth quarter 2022, the transport sector slowed to a 0.7% quarterly expansion after a 3.6% surge in the third quarter, while the financial services sector, the single largest component of the economy, swung into a 2.3% contraction from a 1.6% gain.
The driver of the economic expansion will be investment in the green economy as the private sector invests in renewable energy projects to alleviate unabated and protracted load shedding, but the true impact of this, together with the return to service of units at Eskom’s Kusile and Medupi power stations that are on medium-term repairs after accidents at these two plants, would likely only be visible in 2025.
The BER forecasts a 4.3% rise in gross fixed-capital formation this year and a 6.2% jump in 2024, after a subdued 0.2% gain in 2021.
The potential counter point to this outlook is political uncertainty ahead of next year’s general election. Already manufacturers in the latest BER quarterly survey say that political uncertainty is impacting their investment decisions. A record 91% cited this factor. To put that into context, it is even worse than the uncertainty during the political transition years of 1992 to 1994.
To address this, the BER assembled a panel consisting of Aubrey Matshiqi, Natasha Marrian, Steven Friedmann and Wayne Sussman. The consensus was that one should not write off the ANC just yet, as they could still get a majority in the 2024 elections.
* Helmo Preussis an economist at Forecaster Ecosa