With economic activity picking up and the national budget coming up soon, economists are updating their forecasts and detailing their outlooks for the year. And while the economy is in recovery mode after a setback in the third quarter of last year, it is still far from buoyant.
“Growth in granny gear,” was the way HSBC economist David Faulkner described it in a recent note. The bank’s activity tracker shows a weak second half of 2021, with the recovery punctured by the July unrest, third wave lockdown curbs, worsening energy shortages and strike action. The energy constraint is expected to impose a low ceiling on how fast the economy can expand in 2022, says the bank, even though there is some better news.
Fourth quarter growth numbers are due out from Stats SA only early next month, and we will not officially know how the new year is turning out until midyear. But early indicators present a somewhat mixed picture. While some economists are relatively optimistic about this year, forecasting growth of just over 2%, that is the case mainly because growth last year is now expected to come in below 5% — after the economy contracted by 6.4% in the depths of Covid-19 in 2020.
On the upside, household spending continues to recover, even though the jobs lost to the pandemic have not returned, and consumers are facing rising living costs — especially higher fuel costs — and higher interest rates.
PwC’s latest economic outlook, which estimates that the economy grew by 4.6% last year but will grow by 2.6% in 2022, predicts that consumers’ real disposable income will continue to grow in real terms this year, albeit more slowly than last year.
Absa economist Peter Worthington and his colleagues, whose forecasts are 4.7% for last year and 2.1% for this year, expect that despite the headwinds, consumer incomes will receive some support from a further extension of the Covid-19 special social grant, as well as some recovery in tourism-related employment.
Tourism is another potential bright spot for the economy, especially now that SA has come through the peak of the fourth wave and is loosening up on Covid-19 restrictions. And while SA’s vaccination rate is one of the lowest among large emerging markets, progress has been made, with about 41% of adults now fully vaccinated.
This, combined with evidence indicating up to 80% of South Africans have already been infected with Covid-19, confers a high rate of immunity which should allow for faster reopening of the economy, particularly the worst-affected sectors such as tourism, hospitality and entertainment.
The commodity boom has been the big bright spot for the economy over the past couple of years and though prices of some of SA’s key exports are off their peaks of last year, some still have legs. But export volumes of commodities such as coal and even some agricultural exports have been below what they should have been.
Tragically, SA has foregone the opportunity to take full advantage of the commodity boom, and indeed has failed to make the most of its recovery potential, because of the usual culprits — electricity and transport. Eskom offers a host of reasons why its fleet of power stations runs at well below two thirds of their capacity even on a good day, but whether it is management or maintenance, SA continues to pay the price.
Likewise Transnet has a raft of excuses for the failure of its freight trains to get to their destinations on time, if at all, but whether it is cable theft, or locomotive maintenance, or management, SA pays the price.
Nor is it just the railways but the ports too which constrain competitiveness. And let’s not even mention the slow and expensive broadband holding the economy back while we wait for the spectrum auction. All of these constraints need to be urgently addressed if the economy is even to sustain its recovery, never mind grow faster than a meagre 2%.
Perhaps it’s not too much to ask that President Cyril Ramaphosa’s state of the nation address this week offers at least some hope.
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