South Africa Economic Forecast

Quarter-on-quarter GDP growth markedly overshot market expectations in Q2, accelerating to 0.6% (Q1: +0.4% s.a. qoq). That said, ongoing power blackouts and the logistics crisis continued to hold back the economy, restraining growth. The quarterly improvement was driven by stronger growth in both fixed investment and public spending more than offsetting declining private consumption—which accounts for roughly two-thirds of GDP. In Q3, our panelists expect the economy to flatline; July’s state budget shortfall exceeded market expectations and was the largest since at least 2004, which pressured the rand, increased bond yields and heightened the country’s vulnerability to external shocks. In response, the government is working on a plan to cut spending; however, unions have threatened to strike if the government introduces austerity measures, which would hamper activity.

In July, inflation receded more than markets had anticipated, falling to a two-year low of 4.7% (June: 5.4%) and thus moving closer to the mid-point of the South Africa Reserve Bank (SARB)’s 3.0–6.0% target band. In the remainder of 2023, inflation will inch down to hover slightly above the mid-point of the SARB’s target range amid high unemployment and interest rates.