Is it all doom and gloom for the South African economy?

A total of 38 South African top economists are participating in the 2023 Economist of the Year (EoY) competition, co-hosted by the Bureau of Market Research (BMR) and the University of South Africa (Unisa). To take part in the competition, participating economists are required to provide projected estimates with respect to eight variables on a monthly basis. These eight variables include:

• Average real annual GDP growth rate for 2023 (%).
• Average consumer inflation rate (CPI) for 2023 (%).
• Average prime interest rate in Q4 2023 (%).
• Average ZAR/USD exchange rate in Q4 2023 (ZAR).
• Average Brent Crude oil price in Q4 2023 (USD).
• Average real annual household expenditure growth rate for 2023 (%).
• Average yield on long-term government bonds in Q4 2023 (%).
• Current Account Balance as % of GDP for 2023 (%).

The consensus forecasts based on the median estimates are determined each month for each of the eight variables. The latest consensus provided during March 2023 is contained in the following table:

Considering the consensus forecasts it is evident that participating economists are in general pessimistic about the South African economy with low economic and household expenditure growth rates being forecasted for 2023. Some cautious optimism is however evident from forecasts for lower consumer price inflation, a stronger Rand-Dollar exchange rate and a lower Brent Crude oil price. The expectations regarding the prime interest rate remaining high throughout 2023 seem to be favourable for those with savings, while less favourable for those with existing debt.

The average real annual GDP growth rate is expected to show very little growth in 2023. Given the large number of downside risks to economic growth including load shedding, grey listing, weak global economic growth, low levels of consumer and business confidence, the possibility of further sovereign rating downgrades by rating agencies, the Russia-Ukraine war, prevailing social and political instability, weak governance (including rampant corruption) and infrastructural challenges, the anticipated low average annual economic growth for South Africa does not come as a surprise. There are, however, some possible positives that might be conducive to the realisation of slightly higher levels of economic growth in South Africa during 2023. Such possibilities include an end to load shedding (or at least less severe load shedding), acceleration of private sector involvement in energy and network infrastructure development, the United States and Europe not experiencing economic recessions during 2023, the Chinese economy performing better than anticipated, and the Russia-Ukraine War coming to an earlier end.

The anticipated decline in consumer price inflation (CPI) towards the fourth quarter is very good news for the economy as a whole and especially for cash strapped financially vulnerable consumers and businesses. While CPI stood at 7% during February 2023, the consensus forecast is 5.7% for Q4 2023 which is not just a substantial decline, but also places the CPI rate within the SA Reserve Bank’s Inflation targeting range of 3-6%. This could imply limited to no further interest rate increases during 2023.

Further good news emanating from the March consensus forecast is that the Rand/Dollar exchange rate is expected to improve from the current level of above R18/USD to about R17.53/USD by Q4 2023. This improvement is despite the various downside risks facing the South African economy (i.e. load shedding, grey listing, etc) as mentioned above.

A holistic view of expectations for all eight variables points to a mixed bag of positives and negatives facing the South African economy from the perspective of the participating economists of the Economist of the Year (EoY) competition. Negative aspects seem to be dominating the expectations currently though. It, however, appeared from an EoY Webinar hosted by the BMR in collaboration with Unisa on 29 March 2023 that although the said predominantly negative picture of the South African economy during 2023 may gave rise to low levels of consumer and business confidence and even pessimism of the future South African economy over the short to medium-term, there are possible reasons for optimism when the economic performance trajectory is viewed from a non-linear instead of a linear perspective. Whereas the economic performance trajectory from a linear perspective appears to be on a downward trend, the economy from a non-linear perspective appears to be volatile with the possibility of the positives surpassing the negatives in the medium to long-term.

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