Windfall revenue from high commodity prices and changes to the way gross domestic product is calculated have brightened the outlook for South Africa’s economy.
With the economy now 11% bigger than previously estimated and tax and mineral royalty revenue likely to overshoot forecasts by R169 billion ($11.2 billion), the following charts show how the country’s prospects have improved.
Economists in a Bloomberg survey expect a consolidated budget deficit of 7.1% of GDP in the fiscal year through March 2022, compared with the National Treasury’s February estimate of 9.3% of GDP.
The budget gap for the previous year, when efforts to offset the initial damage wrought by the coronavirus pandemic upped spending and borrowing commitments, is also likely to have improved.
Still, at an estimated 11.6% of GDP, it’ll match the largest shortfall on record that was set in 1914.
Finance Minister Enoch Godongwana will present the government’s updated projections in his medium-term budget speech on 11 November.
Economists remain bullish on South Africa’s 2021 recovery prospects even as Covid-19 vaccine hesitancy – which leaves the country vulnerable to new strains of infection and stricter lockdown measures — and the resumption of rolling blackouts threaten to weigh on output.
The median estimate of 28 economists surveyed by Bloomberg is for GDP to expand 5.1%. That compares with a previous estimate of 4.7% and comes off a low base in 2020, when virus restrictions caused the economy to shrink the most in at least 27 years.
The recovery would have been stronger, were it not for deadly riots and port stoppages that disrupted activity in the third quarter.
With economic growth prospects seen as fragile, only a third of economists see the central bank raising its benchmark interest rate in November from a record-low 3.5%. Six out of 18 economists in a Bloomberg survey expect the South African Reserve Bank to lift the key rate by 25 basis points, while the rest see it standing pat.
Traders differ, with forward-rate agreements starting in one-month showing a more than 100% chance of a quarter-point increase at next month’s monetary policy committee meeting. Rate-hike bets jumped this month after the central bank warned of upside risks to its inflation outlook.
Read: Ramaphosa on load shedding: ‘We’re not the only country with problems’
Discussion about this post