Silver Linings

By Dr. Roelof Botha

Economic Advisor to Currencies Direct

27 October 2023

Leading with good news for the South African economy – an increase in GDP growth projections, inflation remaining within target, SME’s staying afloat post-COVID and the World Bank extending a loan for the development of alternative energy solutions…

IMF raises South Africa’s growth forecast for 2024

The International Monetary Fund (IMF) has provided some cheer to South Africa by raising the country’s GDP growth projection for 2024 to 1.8%. A feature of the IMF’s latest global economic outlook, published in October, is the superior economic growth rates that are expected for emerging markets, relative to the advanced economies.

Reasons for the more bullish economic outlook for Africa’s most diversified economy include improved prospects for lower electricity rationing, a welcome improvement in the pace of capital formation and fundamental macroeconomic stability, especially regarding relatively low inflation and a public debt/GDP ratio of below 75% (the ratio for the US was at 122% at the end of June).

Inflation remains within SARB’s target range

Although inflation, as measured by the consumer price index (CPI) increased marginally from 4.8% to 5.4% in September, the Reserve Bank should refrain from raising interest rates again, as both the CPI and the producer price index (PPI) remain well within the 3% to 6% target range for inflation. Fortunately, a sharp drop has occurred in two of the major items in the consumer spending basket, namely food and transport. Collectively, these two items represent almost one-third of the weighting for calculating the CPI. Looking ahead, a combination of further downward momentum in food prices and a measure of stability for transport and housing costs should lead to the CPI remaining comfortably within the target range.

Business liquidations on a downward trend

Following the predictable dip during the worst of the Covid lockdowns in the 2nd quarter of 2020, a spike occurred in the number of liquidations of companies and close corporations. Since then, however, a pronounced downward trend set in, with the quarterly average during the first three quarter of the year having dropped from 504 in 2019 to 414 in 2023 – a decline of 18%. The graph illustrates this trend, based on a moving four-quarter average, which eliminates seasonality. According to World Bank development indicators, the number of new businesses registered in South Africa had increased from 380,000 in 2016 to 487,000 in 2020. In 2022, SA Revenue Services had 470,000 active VAT vendors on their data base.

World Bank extends $1 billion loan to South Africa

In a statement released on 25 October, the World Bank announced the granting of a loan of $1 billion to South Africa, in order to assist the transitioning to a more just and low carbon economy. A spokesperson for National Treasury welcomed the initiative, stating that it would provide much needed fiscal and technical support, enabling South Africa to pursue new policy priorities in the energy sector. These include the easing of the electricity crisis in the long term, stimulating private sector involvement in the energy sector and creating a substantial number of jobs in the development of renewable energy.

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