The deceleration in global growth will hamper recovery in South Africa
The global economic recovery momentum is losing its steam, and renewed fears of COVID-19 variants, increasing inflation, debt, and income inequality are colliding to threaten the rebound in emerging and developing economies. Global economy projections reflect a marked deceleration, above 100 basis points, from an estimated 5.5 percent in 2021 to 4.1 percent in 2022 as COVID-19 outbreaks resurface, policy support moderates, and supply gridlocks persist. The slowdown will take root as supportive macroeconomic policies wane and demand dwindles; thus, global economic growth forecasts mirror a further 3.2 percent contraction in 2023. The prospects of the South African economy in tandem with other emerging and developing economies appear dim. These economies face a remarkably softer and more precarious recovery in relation to advanced economies precipitated by the sluggish vaccination headway, restricted policy response, and the scarring impacts of COVID-19. This means that as the policy space to support economic activity diminishes, the possibility of a hard landing for emerging markets like South Africa is heightened.
The strong 2020 rebound previously anticipated may not materialise in South Africa
The growth forecasts for the South African economy show a relatively strong rebound in 2021. Domestic fiscal and monetary authorities express a strong sense of optimism. The National Treasury expects the economy to grow by 5.1 percent in 2021, following a 6.4 percent contraction in 2020 due to supportive global growth and upswing in commodity prices and the relaxation of COVID-19 lockdown restrictions. The South African Reserve Bank projects a 5.3 percent expansion. However, the Bretton Woods institutions are less optimistic about the prospects of the South African economy in 2021. The World Bank and the International Monetary Fund estimate an output rebound of 4.6 percent in 2021. The hope underpinning the relatively strong rebound in 2021 is the excellent institutional architecture characterised by a world-class financial system and a flexible exchange rate regime. However, the recovery is likely to have been punctuated by domestic challenges, including the acute COVID-19 flareups, power outages, and a rise in social unrest in the second half of 2021. This means the projection for 2021 may not be realised.
Growth will revert to pre-pandemic trends owing to legacy growth restraining challenges
The South African economy has been typified by continued sluggish growth amid a complicated backdrop. Most of the impediments hindering long-term growth that predate COVID -19 are most likely to persist in the medium to long term. The absence of decisive action to deal with barriers to investment and productivity means that growth and employment will continue to be hamstrung. Moreover, mounting government debt and debt service costs will continue to limit policy space and restrain public spending, choking infrastructure investment, thus translating into a significant hurdle to more robust potential growth. Therefore, economic growth is projected to relapse to its pre-pandemic trend in the medium term. The national treasury estimates that growth will sharply decelerate from 5.1 percent in 2021 to 1.8 percent in 2022 before declining further to 1.6 percent in 2023. The South African Reserve Bank expects the economy to only expand by 1.7 percent in 2022 and 1.8 percent in 2023. The World Bank projects the economy to grow by 2.1 percent in 2022 and 1.5 percent in 2023 , while the IMF expects growth to average 1.4 percent per annum over the same period. This massive slowdown in South Africa coincides with a widening divergence in growth rates between South Africa and various economic groupings, including advanced economies, emerging, and developing economies, and Sub-Saharan Africa (see below).
Real GDP, 2019-2023
The prospects of the South African economy as presented above have a profound detrimental effect on the quality of life for South Africans. As captured by per capita incomes, the standard of living for South Africans has been declining. It is not expected to improve in the medium term because per capita incomes are forecasted in 2022 to be lower than in 2012 in South Africa and are forecasted to remain above 3 percent below pre-pandemic levels in 2023. Unrelentingly high unemployment, extreme inequality, and widespread poverty will continue to weigh heavily on South Africans in the medium term as long as structural impediments to growth remain unresolved.
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