The Treasury has revised its forecast of growth in the South African economy in 2021 to 5.1% from the 3.3% forecast in the February 2021 Budget. It also reduced the impact of the Covid-19 pandemic on the economy in 2020 to a 6.4% contraction from the 7.2% reduction forecast in the February 2021 Budget and the 7.8% decline forecast in October 2020 Medium Term Budget Policy Statement (MTBPS).
It, however, expects a quarterly contraction in the third quarter of 2021 due to the unrest in July in Gauteng and KwaZulu-Natal and the cyber-attack on state logistics firm Transnet.
Nominal changes in GDP for the fiscal years are 5.0% for 2019/20, which was revised from 4.6%, then a revised 2.1% (4.4%) contraction for 2020/21, a revised 10.9% (8.8%) bounce in 2021/22 followed by only a 2.9% (5.9%) rise in 2022/23.
As nominal GDP is the denominator for a host of key metrics such as the fiscal deficit to GDP ratio and the debt to GDP ratio, the raising of the nominal GDP is important for the bond market.
The full calendar year 2021 GDP data will be released on 8 March 2022, but the fiscal year 2021/22 data will only be available in June 2022.
In addition to its base line projection of growth of 5.1% in 2021, 1.8% in 2022 and 1.6% in 2023, Treasury outlined two additional economic growth scenarios.
In Scenario A it projected stronger growth as rapid increases in electricity supply due to a strong uptake of additional electricity-generating capacity and faster reform implementation boosted performance. The reforms required to achieve this include rapid regulatory adjustments, such as implementing the latest round of renewable energy projects that would ease the impact of load-shedding on firms and households. This year has already seen more than 1,000 hours of load shedding.
Scenario B, however, sees slower growth as it reflects the effects of more waves of Covid-19 infections, assuming the vaccine rollout has a limited effect on stemming the spread of infections. This requires stricter mitigation measures such as an increase in the level of lockdown that depress economic activity. In this scenario, vaccine rollout only gains traction in 2022.
Economic recovery is delayed, and the momentum from late 2020 is reversed, leading to long-lasting effects and further reducing growth potential. The hospitality and tourism, entertainment, trade, services and transport sectors are particularly negatively affected. The economy grew by only 1.5% in 2022, and economic activity levels remain lower than currently forecast over the long run.
BUSINESS REPORT ONLINE