Against a backdrop of travel bans, higher inflationary pressures, poor employment, lower vaccination rates and electricity supply constraints, leading data and analytics company GlobalData notes that South Africa’s immediate economic growth prospects are grim. The company has revised its 2022 GDP growth rate forecast for South Africa to 2.1%, down from the December 2021 forecast, which predicted 2.5% growth.
Gargi Rao, Economic Research Analyst at GlobalData, comments: “Despite recording four consecutive quarters of growth between Q3 2020 and Q2 2021, civil unrest in July, tighter COVID-19 restrictions and supply chain disruptions triggered a contraction in South Africa’s economic growth in Q3 2021. Real GDP growth contracted by 1.5% (quarter-on-quarter) in Q3 2021, compared to 1.2% in Q2 2021, according to Statistics South Africa. Now in 2022, the country’s economy is being impacted by tightening restrictions and constraints.”
South Africa has been hit by even more travel restrictions in 2022—around 91 countries currently ban travel to the country, compared to the 60 that first applied travel restrictions in mid-2021. Such tight restrictions continue to deter growth prospects for the travel and tourism industry.
Ralph Hollister, Travel & Tourism Analyst at GlobalData, comments: “International tourism provided a solid contribution to South Africa’s GDP, prior to the pandemic. We predict that international arrivals won’t reach pre-pandemic levels until 2024 in South Africa, further slowing economic recovery.”
African countries continue to have low vaccination rates when compared to other regions. As of January 24, 2022, South Africa has only fully vaccinated 27.9% of its population, compared to other BRICS* nations such as Brazil (70.4%), China (87.6%) and India (49.8%).
Bishal Bhandari, Epidemiologist at GlobalData, comments: “Historically, vaccine hesitancy was always very high in South Africa and this is not unique to the COVID-19 vaccine. Low uptake of this vaccine is thus unfortunate, but not unexpected. Now, the low vaccination rate has made South Africa vulnerable to COVID-19 and its multiple variants.”
According to Statistics South Africa, the country’s manufacturing activity plunged by 8.9% (year-on-year) in October 2021, compared to October 2020.
Rao comments: “Input prices for manufacturers rose steeply verses output prices, which put downward pressure on production. Moreover, unemployment rates reached a new high of 34.9% in Q3 2021—a 0.5 percentage point increase from 34.4% in Q2 2021. The government’s decision to increase the national minimum wage may add to unemployment due to a spike in production costs for businesses.”
Due to weaker sentiment among investors and firms amid power shortages, rising input costs and low vaccination rates, business confidence dwindled since August 2021. Moreover, with subdued demand, the retail trade growth slipped from 3.5% in September 2021 to 1.5% in October 2021. Looting and closure of retailers in KwaZulu-Natal during the civil unrest also resulted in food shortages, which led to decline in household consumption expenditure in Q3 2021.
Soaring fuel prices and transportation costs have been squeezing the overall profits of South African firms. As of October 2021, the consumer price index shot up to 5.5%, the highest in more than four and half years, according to Statistics South Africa. Higher production costs and slowing economic growth could increase the risk of stagflation in the short term.
Rao notes: “In the short term, borrowing costs for businesses and consumers are likely to increase due to inflationary pressures. With the reserve bank hiking policy rates to tame inflation, growth prospects could slow down for businesses this year.
“South Africa needs to critically formulate and implement policies that aid inclusive economic growth and job creation. While short-term disruption due to supply chain issues and travel bans are inevitable, governments need to ramp up the vaccination drive this year, as well as introduce economic reforms aimed at long-term growth that can boost both consumer and business confidence.”
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