Standard Bank predicts economic growth of 1.3% for South Africa in 2023, anticipating a reduced impact of load shedding on the economy as more companies install solar capacity.
- Standard Bank predicts economic growth of 1.3% for South Africa in 2023.
- This is in line with the International Monetary Fund’s forecast but well above the SA Reserve Bank’s expectations.
- The bank has modeled the reduced impact of load disconnection on the economy as companies install solar capacity, adding that SA’s main economic indicators support a growth story.
- For more financial news, go to News24 Business Cover.
Standard Bank forecasts economic growth of 1.3% for South Africa in 2023, saying business confidence in the country, consumer finances and many other economic indicators are better than feared late last year, when some analysts predicted a recession.
This comes as Bloomberg’s monthly survey of economists found that the odds of a recession had risen from 45% in January to 68% in February.
However, the Standard Bank’s forecast is more optimistic than that of the country’s central bank, which has revised down the country’s 2023 GDP growth outlook to just 0.3%.
The SA Reserve Bank (SARB) initially forecast 1.1% GDP growth for 2023 at its November 2022 Monetary Policy Committee meeting. But Standard Bank’s forecast is in line with the International Monetary Fund, which expects South Africa’s economy to grow by 1.2% this year.
READ | IMF slightly raises SA growth forecast for 2023 despite load reduction
The fact that the SARB is forecasting much lower GDP growth than the Standard Bank has not convinced the latter to align with the central bank.
“We think it’s plausible, and we’re probably going to stick with it. [1.3%]. There are a variety of forces that have come into play… The foundations of the home are still stable and reasonably solid. The fixed investment cycle offers acceleration. The external market offers some level of demand promise,” said Standard Bank chief economist Goolam Ballim.
Ballim said that while he suspects the Reserve Bank modeled a greater degree of load shedding into its forecast, Standard Bank believes rapid solar installations in South Africa will provide “some buffer” against the economic impact of power outages. He said that if President Cyril Ramaphosa announces some structural reforms, SA’s economic growth could even surprise to the upside.
In his State of the Union Address, Ramaphosa announced several changes to try to restore energy security in SA. He declared a state of disaster to prevent a total blackout in the country, announced plans for an electricity minister and that the finance minister will soon outline incentives that will help homes and businesses quickly install solar panels.
Ballim said South African businesses and households had already begun to further insulate themselves and their operations against shedding loads.
It’s not as bad as it seems from within SA
Ballim said that many local indicators show a slowdown in the momentum of the SA economy. The retail sector is under pressure as demand for semi-durable and durable goods weakens. He believes that last year’s interest rate hikes will start to show a bigger impact on consumer spending this year.
But looking at the bigger picture, Ballim believes the leading indicators are still supportive of growth.
“Although confidence in South Africa seems to be at pedestrian levels, the confidence tool is more or less at around 10-year levels,” Ballim said, adding that the pessimism people feel about their individual ability is not reflected in confidence statistics.
Business confidence remains at neutral levels. Income and their ability to rely on credit have kept household finances in a “reasonably strong” state. Ballim said it could be that our interpretation of local events as South African is amplified on the negative side.
“The confidence levels measured seem to be better than perhaps the emotional state, the psyche of most South Africans,” he added.
The global mood factor
Ballim said another factor influencing Standard Bank’s forecast was that globally, various developments are beginning to bring an element of “joy.” Around 80% of the world economies are beginning to see inflation growth numbers fall. China has ended its zero covid policy. Gasoline prices have started to fall as the winter turned warmer in Europe, dampening demand.
“Just two months ago, many would have had a more dire outlook for 2023. But there has been a reasonable level of encouragement, a prospect that the global economy will, in fact, perform a little better than initially anticipated. And we subscribe to that issue,” Ballim said.
While Standard Bank still expects growth in developed economies to be slow, it anticipates more dynamic growth in emerging markets. While the bank does not foresee SA’s economic growth matching countries like India and other African economies, Ballim said it is still to SA’s advantage that emerging markets are expected to come to the fore in 2023.
READ | Investor sentiment is shifting in favor of emerging markets, and SA looks poised to profit – JSE CEO
In addition, the recovery of demand for basic products from China and tourism by Chinese tourists should significantly boost the local tourism sector.
“The spillover effect of this Chinese ignition will be significant, especially for the region. And we think it could be significant for commodity-based currencies, and this is where the game in South Africa will be very favorable.” Ballim said.
He said Standard Bank expects notable GDP growth in many of SA’s other trading partners, which should boost the local export market.
