The South African economy at the beginning of 2022: end of Covid-19 fourth wave and more vaccinated, but low confidence persists
• South African Tourism: Tourism is an important sector of the South African economy (it contributed 3.7% to total GDP in 2019) and it has been one of the sectors most adversely impacted by the Covid-19 pandemic. Encouragingly, there was an increase in gross travel receipts in the third quarter of 2021 as the number of foreign tourists visiting South Africa continued their steady rise from the exceptionally low levels of 2020. Meanwhile the Department of Tourism has introduced the Tourism Sector Recovery Plan (TSRP), a plan meant to facilitate the recovery of the sector.
• Economic growth: The South African economy’s recovery momentum faltered during the third quarter of 2021. Yet, South Africa is now at the tail-end of the fourth wave of Covid-19 infections. At the same time, evidence points to the recent wave as having caused much less economic disruption than the previous three waves. We expect South Africa’s economic growth to have registered a growth rate of 4.7% in 2021 and for growth to moderate to 2% in 2022.
• Unemployment: The official unemployment rate reached another new high in the third quarter of 2021. All the major economic sectors experienced job losses from the second to the third quarter of 2021, with the exception of the finance (finance, real estate and business services) sector.
• Inflation and interest rates: Annual consumer prices accelerated significantly during the second half of 2021 in South Africa, and risks to the inflation outlook are on the upside. The South African Reserve Bank has increased the benchmark interest rate twice already since the significant cutting of rates in 2020.
• The Fiscus: There has been added demand on government finances on account of the Covid-19 relief measures in South Africa. Over and above the country’s preexisting extensive social security system, the government introduced the Social Relief of Distress (SRD) grant as a temporary means of providing assistance for those in dire need during the pandemic. Though the grant has already been extended past its original period, there have been calls for the grant to be extended further and/or be turned into the country’s basic income grant. During his State of the Nation Address (SONA 2022), President Ramaphosa announced that the SRD grant would be extended to end of FY2022/23. All in all, the extension of the grant or the possibility of its morphing into a basic income grant is going to add even more pressure to the country’s fiscal stress.
• Current account: South Africa’s current account recorded another surplus in the third quarter of 2021, its fifth consecutive surplus since the third quarter of 2020. The significant and persistent rise in South Africa’s export commodities since 2020 and the subsequent increase in the country’s terms of trade have led to a number of positive developments for the economy. Among others, these include the much-improved current account balance, a boost to real GDP and tax revenue.
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