SARB remains bullish on country’s growth prospects

THE SOUTH African Reserve Bank (SARB) has remained bullish about this year’s economic growth prospects, in spite of the prolonged lockdown and negative impact of the July riots.

The SARB, on Thursday, revised upwards South Africa’s gross domestic product (GDP) to 5.3 percent, from a previous forecast of 4.2 percent, despite the much larger negative effect on output.

SARB Governor Lesetja Kganyago said the July events – widespread looting and violence in KwaZulu-Natal and Gauteng – and the pandemic, were likely to have lasting effects on investor confidence and job creation, impeding recovery in labour-intensive sectors hardest hit by the lockdowns.

However, Kganyago said that the risks to the medium-term domestic growth outlook were assessed to be balanced, as most of the bounce-back from the recovery was now in the past.

“High export prices are expected to fade, while very weak job creation will slow household consumption,” Kganyago said. “Investment will remain constrained by the still limited energy supply and ongoing policy uncertainty. The faster vaccine roll-out presents upside risks to the growth outlook.

“Overall, and after revisions, the risks to the medium-term domestic growth outlook are assessed to be balanced, as most of the bounce-back from the recovery is now in the past.”

For 2022, Kganyago said, GDP was expected to grow by 1.7 percent, down from 2.3 percent, and by 1.8 percent in 2023, down from 2.4 percent.

Anchor Capital’s investment analyst, Casey Delport, said the downward revision of growth in the next two years was a worrying factor relating to the structural weaknesses in the economy.

“Whilst the 2021 growth outlook was raised significantly higher, of concern is the SARB’s downward revision of GDP growth in 2022 and in 2023 – indicative of the inherent structural weaknesses still present in the economy,” Delport said.

The bank’s Monetary Policy Committee unanimously kept interest rates unchanged at 3.5 percent per annum, though its forecast reflected higher headline inflation for the rest of this year, before moderating in 2022.

Nedbank’s senior economist, Nicky Weimar, said they expected the recovery to continue, but growth rates would slow as the impact of last year’s low base fades.

“Therefore, the negative output gap will only narrow very gradually over the next three years, helping to subdue price pressures,” Weimar said.

“Added to this, considerable downside risks to growth remain, including new Covid outbreaks, frequent lockdowns, persistent power outages, and the threat of adverse turns in commodity prices.”

North West University Business School economist Professor Raymond Parsons said the “bounce-back” in the economy needed to be translated into sustained growth.

“The usual constraints on higher inclusive growth – such as the lack of energy security, policy uncertainty, weak confidence and slow progress with structural reforms – still require urgent attention to boost investor confidence. These are key issues to improve South Africa’s future economic performance, but they lie outside the mandate of the SARB,” Parsons said.

– BUSINESS REPORT