Global and domestic shocks to slow the South African economy following the impressive Q1-2022 GDP print
• South African growth: Following its notable recovery in 2021, the South African economy once again surprised on the upside during the first quarter of 2022. However, due to numerous negative shocks acting as headwinds, evidence is pointing to a contraction in the second quarter of 2022.
• Sovereign credit rating: Despite Fitch Ratings' maintaining South Africa’s long-term foreign and local currency debt ratings at BB- in early July, it also maintained its previous stable outlook on the country’s debt - largely citing South Africa’s lower debt trajectory.
• The consumer: South Africa’s rising inflation and the resultant increasing cost of living are having a detrimental impact on consumer purchasing power. This is being compounded by increasing interest rates meant to curb the high inflation.
• Electricity: President Ramaphosa announced several actions and measures to be undertaken expeditiously to solve the country’s electricity woes. This has been largely received well, especially by business. And should the proposals be implemented as planned, South Africa is likely to start tackling its more than a decade-long energy crisis.
• Inflation: South Africa recorded its second consecutive inflation reading to come above the Reserve Bank’s upper limit of the inflation targeting band of 3% to 6%. This also made it the highest inflation reading since mid-2009, i.e., when the country’s economy was confronting headwinds from a weak currency on the back of the 2008/09 global financial crisis.
• Interest rates: The South African Reserve Bank raised the benchmark interest rate by 75 basis points in late July. The Reserve Bank has raised interest rates by 200 bps since it began the process of policy normalization in November 2021.
• The fiscus: Revenue collection by the South African government improved considerably in the past financial year. Total government revenue rose on a year-on-year basis by 26.3% during FY2021/22, thanks largely to booming commodity prices.
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