A leading economist has warned that South Africa’s growth forecasts for 2023 were not realistic and needed to be revised down in light of the persistent energy crisis that is crippling activity.
Professor Raymond Parsons, an economist at North West University Business School, said yesterday that the South African Reserve Bank (SARB) may have to adjust its growth forecasts.
This comes after the SARB yesterday revised downwards its economic growth projection from 2% to 1.9% for 2022 as its Monetary Policy Committee (MPC) also hiked interest rates by another 75 basis points.
SARB Governor Lesetja Kganyago said the economy was forecast to expand by 1.4% in 2023 and by 1.7% in 2024, above previous projections of 1.3% and 1.5%, respectively.
Kganyago said risks to the growth outlook were viewed as balanced with consumption and fixed investment outcomes likely to offset load shedding and slower global growth.
The Reserve Bank’s forecast is reflective of economic headwinds from the Russia-Ukraine war, KZN floods and intensified power cuts which had not occurred when the National Treasury projected growth of 2.1% for 2022, and an average of 1.8% over the next three years, in the February Budget.
However, Parsons said the SARB may be too optimistic about the future growth outlook – and that downside risks to growth may well in any event have risen.
“The combination of the latest persistent Eskom blackouts, cumulatively higher borrowing costs and an uncertain world economy now require SA to set its 2023 GDP growth expectations at only about 1.4% in 2023, in line with the SARB’s own current forecast,” Parsons said.
“Given the emphasis by Kganyago on the challenges faced in setting monetary policy when economic uncertainty is unusually high, the MPC would do well to stay nimble.
“As the governor has promised, in these circumstances it is right that monetary policy strategy must remain data-dependent, not dogmatic. There are whirlpools on both sides, not on one only.”
While the first quarter economic growth print surprised on the upside with a 1.9% growth, the economy contracted by -0.7% in the second quarter largely on account of the severe floods in KZN which impaired economic activity.
As a result, the SARB has forecast growth lower at 0.4% and 0.3% in the third and fourth quarters, respectively.
Kganyago said that although household spending was likely to soften next year, private investment had strengthened on the back of the recovery, but public sector investment remained weak.
However, SA Federation of Trade Unions (Saftu) general-secretary Zwelinzima Vavi said the economic growth decline was caused by lack of investment in the country due to the investment strike of the corporate sector.
“The investment strike has resulted in the hoarding of an estimated R1.4 trillion is not without cause. It is premised on profiteering motives,” Vavi said.
“The investment strike and the currency traders demonstrate how our monetary policy serves the interests of profiteering more than anything.”