Real GDP growth projections for South Africa will accelerate to 3.5 percent in 2021, after contracting by 7.1 percent in 2020. Rising private consumption will be the main driver of the economic recovery, according to Fitch Solutions.
Based on Fitch Solutions analysis, private consumption increased by 4.7 percent quarter-on-quarter in Q1 2021, largely reflecting the positive impact on consumer confidence of the easing of social distancing rules.
The research firm notes the progress on vaccination will bolster consumer and business activity in H2 2021.
According to the latest data from Statistics South Africa (StatsSA), real GDP grew by 4.6 percent on a seasonally adjusted and annualized quarter-on-quarter basis in Q1 2021. This is after expansions of 67.3 percent in Q3 2020 and a downward revision of 5.8 percent in Q4 2020.
Overall, Fitch Solutions expect private consumption to grow by 4.1 percent on a year-on-year basis. This will contribute 2.6 percentage points to headline growth. However, this remains a relatively modest expansion looking at the base effects arising from 5.4 percent in 2020. This reflects continued constraints arising from high unemployment, according to Fitch Solutions.
Unemployment rose to a high of 32.6 percent in Q1 2021, above the five year average (2015-2019) of 27.2 percent. Fitch Solutions expect that this will remain elevated at around 30.4 percent at year-end 2021. Thus, the winding down of coronavirus-related support programmes exert persistent pressure on the finances of businesses.
Furthermore, net export is also considered to bolster economic growth. Fitch Solutions expect global growth to accelerate to 5.7 percent in 2021, following a contraction in output in 2020. Also, expansion in China, which accounted for 11.4 percent of South Africa’s exports in 2020 will rise to 8.5 percent from 2.3 percent, Fitch Solutions expects.
Other drivers of the growth forecast
The global rebound will support demand for commodities, particularly for minerals, oil & gas, and agricultural commodities, which together made up for some 51.5 percent of South Africa’s goods exports in 2020.
Fixed investment and government consumption will make modest contributions to headline growth. Gross fixed capital formation fell by 17.5 percent in 2020. However, Fitch Solutions expect that private investment will increase. This follows gradual easing of restrictions, consumer spending picks up, and add 1.0 percentage point to growth in 2021.
In addition, normalizing global economic conditions and slightly more rapid progress on reform will support a recovery in foreign direct investment (FDI). According to the UNCTAD, FDI to South Africa almost halved to US$2.5bn in 2020 from US$4.6 billion in 2019.
Fitch Solutions expect government consumption to add 0.5 percentage point to growth. The budget for the 2021-2022 fiscal year outlines increased infrastructure spending. It also projects a solid reduction in recurrent spending. Also, the government will struggle to achieve its stated aim of limiting public service wage increases at 1.2 percent annually.
Fitch Solutions expect real GDP growth to moderate to 2.3 percent in 2022 as the base effects arising from the 2020 recession ease, and long-standing structural constraints on growth persist. Unemployment is likely to moderate only gradually. Fitch Solutions forecast a year-end rate of 28.5 percent.
