Panel of economists predicts continuation of economic woes for South Africa during 2022

The economic woes of the past decade appear to continue according to the 35 participants of the Bureau of Market Research (BMR) Economist of the year competition. Based on the consensus (median) score of the participating economists’ forecasts, economic growth will decline to about 2% during 2022, which is below the National Treasury’s forecast of 2.1% announced by the Minister of Finance in the 2022 budget speech, and substantially lower than the revised National Treasury’s estimate of 4.8% for 2021. According to the 2022 National Budget forecast, the average GDP growth rate for the period 2023 to 2025 is expected to be even lower at 1.8%, which implies a prolonged period of poor economic growth. The implication of this economic stagnation is that investor confidence and job creation will remain low, severely impacting the financial vulnerability of South African consumers. This view is evident from the latest economic predictions by the panel of economists who are forecasting a rather conservative consensus estimate of 2.2% with respect to real household consumption expenditure growth during 2022. This forecast is substantially lower than the estimated real household consumption expenditure growth rate of 5.7% during 2021.

Rising headline inflation is expected to exacerbate adding to the economic woes of South African consumers. The consensus among the panel of economists anticipates the inflation rate to increase to about 5.1% during 2022.  This figure is substantially higher than the 4.5% experienced during 2021. It is especially worrying that during January 2022 the most financially vulnerable consumers (lowest expenditure deciles) also experienced higher levels of price inflation compared to the less financially vulnerable consumers, making them even more financially vulnerable.  Income and expenditure inequalities in South Africa therefore appear to be increasing thus exacerbating existing socioeconomic and political instabilities.

Other areas of serious concern arising from the forecasts point to the rise in the prime interest rate which is expected to increase to 8.25% by the end of 2022 (compared to the current 7.5%).  Furthermore, the Dollar price of Brent Crude oil per barrel (which is a leading indicator of future domestic fuel prices for South Africa as a net importer) is expected to increase from the 2021 average of $70.70 dollars per barrel to $78.00 during 2022. Giving impetus to an anticipated increase in fuel prices during 2022 is the expected depreciation of the value of the South African Rand against the US Dollar, which is expected to weaken further from the current ZAR15.01/USD to ZAR15.67/USD by the end of 2022.

Taking into account the discouraging forecasts of the panel of economists and those of the National Treasury (as provided in the 2022 Budget), the question remains if the Budget will give rise to a new economic framework which should lay the groundwork for higher economic and household expenditure growth as well as greater price and currency stability during 2022. The Budget which has already been termed by the media as ‘boring but responsible’ is in itself not optimistic in this regard, indicating that low economic growth rates will persist for some time with accompanying downside risks inclusive of fiscal pressures, instabilities at State Owned Enterprises, electricity generation and institutional challenges at Eskom, the high public wage bill and government debt – collectively giving rise to large-scale fiscal constraints.

Despite the overwhelmingly discouraging views expressed by the panel of economists, the poor outlook for the South African economy will prevail if the right macroeconomic policies are not crafted and executed. The National Budget provides the first green shoots for such a turnaround as evidenced by the ‘tough love’ government policy towards the finances of State Owned Enterprises, the renewed commitment to the acceleration of infrastructural development, the stronger focus on support to SMMEs, the strengthening of the public employment programme as a short-term measure to address massively high levels of unemployment and poverty, the provision of higher employment tax incentives to stimulate employment, a fuel levy holiday during 2022/23 to curb the rise in fuel prices and the reduction in the marginal corporate income tax rate from 28% to 27% during 2023.

Enquiries:
Prof CJ van Aardt
Research Director:  Bureau of Market Research (Pty) Ltd
carel.vanaardt@bmr.co.za