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South Africa's economy seen growing 4.1% 2021

06/18/2021 | 08:47am EDT
People work at ''The Faktory

JOHANNESBURG (Reuters) - South Africa's economy is on track to grow 4.1% in 2021, above recent median forecasts for Sub-Saharan Africa as a whole but not enough to make up for last year's huge coronavirus-related contraction, a Reuters poll found on Friday.

The rebound comes after a 7.0% contraction last year and the latest median forecast of economists polled in the past week was 0.2 percentage points better than in last month's survey. Next year's growth was expected to slow to 2.4%.

Eskom, which supplies most of the electricity to Africa's most industrialised nation, has been implementing regular power cuts, or load-shedding, due to ageing coal-fired power stations. A slow pace of COVID-19 vaccinations is another drag on growth.

"Until now, concerns about load-shedding, a third wave of COVID-19 infections, and the pedestrian local vaccine rollouts have been the crucial factors explaining the hesitancy to notably boost the real GDP growth forecast for 2021," said Hugo Pienaar at the Bureau for Economic Research.

The country's gross domestic product expanded by 1.1% quarter-on-quarter in the first three months of 2021 on a seasonally adjusted basis, after an expansion of 1.5% in the fourth quarter of 2020.

Pienaar added risks were now materialising but better-than-expected Q1 GDP data, as well as indications that at least some of the momentum was sustained this quarter, imply GDP growth of potentially well above 4% in 2021 was becoming a reality.

On a seasonally adjusted and annualised basis, the economy grew 4.6% quarter-on-quarter, following growth of 5.8% in the previous quarter.

"Importantly, like the second wave, this assumes a continued light(er) touch from government on lockdown restrictions through the third wave," said Pienaar.

South Africa has entered a third wave of infections, leading authorities to impose a stricter level 3 lockdown amid a surge in daily cases. The level includes restrictions on alcohol sales and tougher rules around public gatherings.

Medians in a Reuters poll taken in April showed sub-Saharan Africa was expected to grow 3.3% in 2021 after contracting nearly 2% last year.

Statistics South Africa said in its latest GDP report that during periods of economic instability annualised readings can be misleading because they exaggerate growth rates unlikely to be repeated.

Stats SA said largely as a result of the COVID-19 pandemic and lockdown regulations real GDP contracted sharply in the second quarter of 2020 and rebounded strongly in the third quarter so annualised rates would no longer be their headline figures.

South Africa announced further steps to address its electricity supply problem, which has long weighed on the economy, but Capital Economics said the measures would probably take time to bear fruit.

Interest rates were expected to remain unchanged at 3.50% this year but be raised to 3.75% either in January or March next year and to 4.00% either in July or September.

Quarterly inflation figures show South Africa is already experiencing negative real rates although the rand currency has been very supportive in suppressing imported inflation.

Inflation, which South Africa tries to keep between 3-6%, was expected to average 4.2% this year and 4.4% next year.

(For other stories from the Reuters global long-term economic outlook polls package:)

(Reporting by Vuyani Ndaba; Additional polling by Manjul Paul; editing by Philippa Fletcher)

By Vuyani Ndaba

ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
DOW JONES AFRICA TITANS 50 INDEX 0.00% 516.16 Delayed Quote.-2.41%
DOW JONES SOUTH AFRICA(ZAR) 0.00% 1908.7 Delayed Quote.8.22%
EURO / SOUTH AFRICAN RAND (EUR/ZAR) 0.27% 17.49233 Delayed Quote.-2.35%
S&P AFRICA 40 INDEX -0.01% 165.95 Delayed Quote.-3.94%
US DOLLAR / SOUTH AFRICAN RAND (USD/ZAR) 0.22% 14.84551 Delayed Quote.1.37%
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