South Africa will only see growth of 0.3% this year, says Sarb

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Reserve Bank governor Lesetja Kganyago
Reserve Bank governor Lesetja Kganyago
Photo: Reserve Bank/Twitter


After increasing the repo rate by 25 basis points to 7.25% on Thursday, the Reserve Bank says it now expects South Africa’s economy to grow by a meagre 0.3% for 2023 because of load shedding. The country’s economy has been brought to its knees by the effects the severe load shedding has had on businesses and households.

Reserve Bank governor Lesetja Kganyago said: “The intensity of load shedding and the length of load shedding has increased since the November meeting."

Our estimate at the moment is that load shedding would have shaved off 2% from economic growth for 2023. So, when we [forecast] growth of 0.3% give or take, we think the economy could have easily been 2.3% growth during the course of this year. Load shedding isn’t only impacting growth which is the conundrum that SA faces, but it also has price effects - raising the cost of doing business and the cost of living for households

In the third quarter of 2022 the domestic economy rebounded strongly, growing by 1.6% following a contraction in the second quarter.

Chris Loewald, the head economic research and an MPC member, sought to explain this surprising number. He said third quarter data was volatile making it difficult to read what was going on.

“Some of what might be happening is that economic agents reacted strongly with growth or expenditure in the third quarter because they had put things off from the second quarter.

"If you remember, in the second quarter running into the third quarter, there were a number of shocks to the economy which might have affected both sectoral outputs and expenditure decisions.

"There’s really no good way for us to account for it except to look back and try and understand what kind of errors we made,” he said.

However, the MPC said this expansion was not broad-based. As a result it expected zero growth in the three months to December.

Despite this, annual growth for 2022 was expected to come in at 2.5%, up from an earlier forecast of 1.8%.

READ: Inflation rate eases after hitting 13-year high in 2022

The MPC said a growth rate of around 5% was needed to make a dent in the unemployment level in the country.

It said the low growth environment posed a risk for rand weakness which would likely have inflationary implications.

Inflation remains way above the bank’s upper end of the 3% to 6% target band. Headline inflation was 7.2% in November, down from October’s 7.4%.

Average inflation expectations for 2023 remained elevated at just above 6% when measured against last year. However, a recent market survey puts inflation expectations at 5.5%.

Kganyago said: “Inflation globally is at an elevated level. The [MPC statement] is reflective of the fact that the public is intolerant of higher inflation and that central banks tasked with the responsibility of price stability cannot just talk about restoring price stability but have got to demonstrate in the actions that are taken that they mean business about price stability.

"You can rest assured this central bank means business about price stability because that is the remit that we are tasked with in terms of the constitution.”

He added: "We do not know what the terminal rate is. What we do know is that inflation is here. Inflation is a problem."

South Africans have expressed discomfort with the fact that inflation is eating into their incomes and South Africans should correctly expect that the central bank should do something about inflation before it permanently erodes their incomes.

He added: "The stance that the Reserve Bank has taken since we started to adjust policy in November 2021 was reflective of the fact that our mandate says we must protect the value of the currency in the interest of balanced and sustainable growth."

On whether we have reached the end of the hiking cycle as many analysts have predicted, KPMG lead economist Frank Blackmore said it was not clear where the end was currently.

He said: “My read is that if we still have the 7% inflation in March, we will have a further increase so it will also probably be a 25 basis point increase because we’re approaching let’s say the end.

"But we don’t know when the end is; so we don’t want to over burden the economy by putting on large increases.

"We will watch the data when the data is moving in the right direction which will allow us then to have these smaller increases irrespective of what the US Federal Open Market Committee (FOMC) does." 

FNB chief economist Mamello Matikinca-Ngwenya said: “We still believe that the MPC will reach the terminal end of the current hiking cycle in quarter one of 2023 and that, if another 25 basis points hike is delivered in March, there should be space to support the economy before year-end.

"Nevertheless, global interest rates generally will remain higher for longer as expectations of future inflation remain above target."

READ: Ramaphosa's ANC re-election boosts policy certainty index

Asked about the popular question of changing the Reserve bank’s mandate, Kganyago said if the bank’s mandate was amended to include employment, then it must be given the tools to deal with that.

“You are going to have to give us a say on how labour markets function because otherwise you will be setting us up to fail.

"Are central banks designed to shape the way labour markets should be? I do not think so. But if the people of this country decide that is what they want it can be done.

"Its not like these experiments have not been tried elsewhere and people talk about implementing unorthodox policies to do certain things, well let me some up for you, unorthodox policies have led to exactly orthodox outcomes.”

He concluded by saying: “High inflation is not a growth strategy. High inflation is not an employment strategy.”

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