Economic growth in South Africa is expected to stagnate below 1% this year as activity remains constrained by inadequate electricity supply, freight rail capacity and a weaker global outlook.
Finance Minister Enoch Godongwana yesterday said that the long-standing structural constraints continued to limit economic performance in the country.
In his Medium-Term Budget Policy Statement (MTBPS), Godongwana said power cuts were expected to continue for the remainder of this year before gradually easing in 2024.
He said the gross domestic product (GDP) outlook had dimmed in spite of the 0.9% growth experienced in the first half of the year, and the recovery in sectors such as tourism, agriculture, construction, transport and communications.
“We forecast a 0.8% growth in real GDP in 2023. This is 0.1 percentage points lower than the growth projection at the time of the 2023 Budget,” Godongwana said.
“Growth is projected to average 1.4% from 2024 to 2026. These growth rates are not sufficient to achieve our desired levels of development.
“However, our economy has shown signs of resilience. Real gross domestic product, a measure of economic performance, is now above pre-pandemic levels.”
The MTBPS documents stated that faster, determined implementation of energy and logistics reforms remained critical to boosting economic growth.
According to the documents, Transnet Freight Rail had consistently transported fewer volumes than targeted for and had contracted since 2018.
This collapse stemmed from operational failures, increased theft and vandalism, reduced locomotive availability and the poor condition of infrastructure resulting from underinvestment.
The National Treasury said coal exports forfeited as a result of operational failures could have added 1.3 percentage points to the current account balance in 2022, resulting in a current account surplus.
The cost of rail inefficiencies last year is estimated at R411 billion, which has also reduced tax revenue.
Although total Eskom power cuts to end‐September 2023 already exceed the figure for all of 2022, load-shedding hours have declined quarter by quarter this year due to improved plant performance.
Additional capacity of more than 11 000MW from renewable sources is expected over the next three years as the pipeline of private energy investments continues to grow and this should sharply curtail power cuts.
However, Godongwana also warned that risks to the domestic outlook remained elevated, despite progress in addressing constraints in electricity and rail.
He said other domestic risks included higher‐than‐anticipated inflation and high household indebtedness.
“Unfortunately, since February, the risks to the economy that we warned about, including the decline in global commodity prices that granted us substantial revenue last year, elevated inflation and the rand depreciation, have materialised,” he said.
South Africa’s dwindling growth outlook is not an outlier as a number of emerging markets and developed economies are faced with subdued growth prospects this year on the back of stubborn inflation.
The International Monetary Fund (IMF) has lowered its global economic growth forecast for 2024 to 2.9%, down from 3.1% at the time of the 2023 Budget, with risks tilted to the downside.
The expected slowdown is mainly due to lower manufacturing activity in major advanced economies.
Inflation in advanced economies is projected to ease from 7.3% in 2022 to 3% in 2024 due to lower energy and food prices, but higher‐than‐anticipated international oil prices and wage price increases pose upside risks to inflation.
But near‐term growth in emerging markets is expected to be more resilient owing to buoyant industrial activity in Brazil and India.
However, Godongwana said the weaker outlook for Chinese growth had also weakened the outlook for mineral commodity prices.
“The weaker growth outlook for China, South Africa’s largest trading partner; the lower commodity prices; and the risk that the US interest rates will remain higher for longer, means the global economic environment is less supportive of South Africa’s growth prospects,” he said.