Tough times predicted for SA economy

Nedbank economist Isaac Matshego painted a grim picture of South Africa’s post-pandemic economy at the Nedbank Vinpro Information Day.

He said the country’s economy had been in a downturn (its longest ever) since December 2013. Moreover, the year 2020 had seen “our deepest downturn in history”.

He estimated that it would take three to five years before the economy recovered to 2019 levels, which had, in fact, been a weak year, as the economy grew by only 0,5% at the time.

He ascribed the poor economic outlook to international factors, but primarily to self-inflicted damage, such as corruption and rolling blackouts.

“Load-shedding could result in South Africa missing the boat of international investment from the expected 2024 global economic upturn,” he said.

While it would obviously be better for the country to revert to Stage 4 load-shedding, Matshego expected Stage 6 to be the norm for 2023. He also predicted that rolling blackouts would remain a problem for the next two years, as it would take time for the number of independent energy generators to build up.

In addition, consumer sentiment was dampened by the weak job market, high inflation and rising interest rates, and this was taking its toll on consumer spending.

Matshego forecast that consumer price inflation, which increased from 4,6% in 2021 to 6,9% in 2022, would ease as global pressure moderated, but would remain high at 5,4% in 2023 and 4,7% in 2024 because of local inefficiencies.

Referring to the impact of rolling blackouts on food production, such as in the poultry industry, where millions of chicks had to be culled due to extended load-shedding, he said this had not yet been carried over into market prices.

Matshego pointed out that South Africa’s inflation rate was not as high as that of some other developing markets. One reason for this was the South African Reserve Bank’s interest rate hikes.

“[These] are helping to keep our inflation and the rand stable, whereas inflation has increased by as much as 80% in some countries,” he said.

He expected interest rates to move from 10,5% to 11% by March this year, but to return to a lower level in 2024, where it should stay in 2025.

Matshego said that the rand was surprisingly resilient, with Nedbank deeming it undervalued by around 5%.

He expected it to drop from its 2022 average of R16,41 against the US dollar to R17,03 in 2023 before recovering slightly to R16,64 in 2024. Measuring it against the euro, he said it should drop from its average of R17,23 against the euro in 2022 to R18,19 in 2023 and R18,62 in 2024.