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South Africa Economic Outlook

30 June 2022 PwC

Updated macro scenarios for 2022-2023

PwC South Africa is pleased to share its sixth South Africa Economic Outlook report for 2022.

This edition focuses on a review of our core macroeconomic scenarios. We are now halfway through 2022, which is an opportune time to relook at forecasts for this year and 2023.

Our baseline scenario for the country has deteriorated since the start of 2022 as a combination of local and international factors caused a weaker rand, higher consumer price inflation, a faster increase in interest rates, slower economic growth, and a continued rise in the unemployment rate.

For example, recent higher-than-expected inflation readings are expected to result in the South African Reserve Bank (SARB) increasing interest rates by 0.5 percentage points in July. We believe this will be followed by another 0.25 percentage points increase in September.

Lullu Krugel, PwC South Africa Chief Economist, says:

The current outlook for the economy is not far removed from what a downside scenario looked like at the start of the year. Companies that worked with different forecast scenarios before the onset of the disruption caused by the Russian invasion of Ukraine, and who planned for this kind of downside situation, would have strategies in place halfway through 2022 to manage the deteriorated macroeconomic outlook.

Electricity load-shedding is the primary constraint on South Africa’s economic growth process and we believe the country’s medium- to long-term potential growth is around 1.5% p.a. Most recently, Eskom shed 1,054 gigawatt hours (GWh) during January-April 2022. This started the year off with a 25% increase in average load-shedding intensity per month.

Christie Viljoen, PwC South Africa Senior Economist, says:

Our updated forecasts are more pessimistic about the economic outlook towards 2023 due to several headwinds, including pressure from geopolitical risk on the exchange rate, the near-term expiry of fuel tax breaks, and no improvement in the electricity load-shedding situation, amongst other challenges.

Key content in this edition includes:
• Geopolitics in Europe will continue to play a key role in the rand’s valuation.
• Two-month extension of fuel tax relief increases total benefit to R14bn.
• South African Reserve Bank (SARB) is anticipated to revert to 25bps rate hikes after July.
• The level of output in the economy is back to pre-COVID-19 levels.
• A positive jobs outlook this year following many resignations in 2021.

The report and associated projections are updated on a monthly basis — though revisions could occur more frequently based on major economic data releases or key influential events.

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