South Africa’s electricity supply shortages continue to cripple the economy while external headwinds intensify
• Bonds: Similar to other emerging market assets, South African bonds were victim to the selloff underpinned by negative shocks to global financial markets largely driven by the Russia-Ukraine conflict, elevated and persistent inflation rates together with faster monetary policy tightening, slowing growth in China, and growing recession fears. Nonetheless, the government’s significantly lower borrowing requirement on account of a much-improved fiscal position led to lower net government issuance in the first ten months of 2022 relative to the corresponding period of 2021.
• South African growth: The overall (unadjusted) GDP growth for the first three quarters of 2022 was 2.3% higher than the corresponding period in 2021. At the same time, the size of the economy exceeded pre-pandemic levels. Although South Africa’s growth was relatively robust during Q3-2022, the impact of the Reserve Bank’s policy normalization is already being felt in the economy, and is especially evident in cooling domestic demand. The slow-down in global growth meanwhile acts as a headwind to South Africa’s own recovery, especially through lower external demand for exports.
• Construction: The quarter-on-quarter expansion in construction activity during Q3-2022 represented the first positive growth in the sector since Q1-2021, and came on the back of increases in residential and non-residential activity, as well as other construction works.
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