The World Bank, which upgraded its forecast for SA's economic expansion in 2021, warned that the recovery would then be constrained as Covid-19 restrictions and long-standing problems such as Eskom’s power cuts prevent it from gaining momentum after the biggest slump in a century.
In its April 2021 Africa Pulse publication released on Wednesday, the global development lender raised its 2021 growth forecast for SA to 3%, citing a boost in demand for commodities as key economies pick up steam. But that's still below predictions by the Treasury and the Reserve Bank. The central bank said last week that SA's GDP, which shrunk 7% in 2020, would rebound 3.8%.
The World Bank said it expected SA’s economic growth to moderate to 1.9% in 2022 as structural constraints such as ongoing electricity shortages continue to hamstring the economy. A shrinking economy and extra spending on Covid-related relief measures pushed the country's budget deficit to a record, and the government now expects the debt-to-GDP ratio to stabilise at close to 90% by 2025/2026. In February, it announced a budget that included huge cuts in spending, meaning fiscal policy won't be supportive.
“Growth in SA is expected to resume in 2021, driven by a rebound in global activity, including higher demand for commodity exports,” the World Bank said. “However, restrictions imposed to curb a second wave of Covid-19, fiscal tightening, high unemployment, along with power cuts will prevent a stronger recovery.”
The contraction in 2020 was the second-largest annual contraction since records began in 1912 and the worst slump since an 11.9% decline in 1920, according to Reserve Bank data. The economic shock came as the government imposed one of the world’s harshest lockdowns in an attempt to prevent the spread of Covid-19.
The measures, which included three complete bans on alcohol sales and severe restrictions on movement, drove unemployment to a record 32.5% which, together with a wave of wage cuts in industry, saw spending by households drop by 5.4%, more than double the decline seen in the wake of the global financial crisis.
Showing its greater willingness this time to take into the economic effect, President Cyril Ramaphosa on Tuesday announced tweaks to the country's Covid-19 restrictions that didn't go as far as industry feared. A ban on alcohol sales will only last four days and apply to those selling for off-site consumption.
The World Bank also forecast GDP growth of 2.3% to 3.4% for Sub-Saharan Africa in 2021, following a 2% contraction in 2020, which it said was the region’s first recession in 25 years. It expects the region to record real GDP growth of 3.1% in 2022, unchanged from previous estimates.
“Economic activity in the region is expected to strengthen as actions are deployed to contain new waves of the pandemic and vaccine rollouts gain speed,” the World Bank said.
Nigeria, Africa’s biggest economy, is expected to rebound from a 1.8% contraction in 2020 to record moderate growth of 1.4% in 2021. Angola is likely to see economic growth of 0.9%.
Even so, the World Bank cautioned that the strength of the economic recovery would vary across countries and sub-regions and warned that a resurgence of Covid-19 pandemic fuelled by “highly transmissible variants” could temper the expected economic rebound.
It also warned that 235-million people in Sub-Saharan Africa have insufficient food with Democratic Republic of Congo, Ethiopia, Somalia, South Sudan, Sudan and Zimbabwe most at risk of experiencing food security crises over the next 12 months.
Sub-Saharan Africa’s inflation rate is projected by the World Bank to rise moderately to 3.7% in 2021, from an estimated 3.5% in 2020 driven by rising food prices and currency depreciation in certain countries.
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