South Africa Economic Forecast

The economy should have returned to growth in Q1, with GDP likely posting a marginal quarter-on-quarter expansion. Any growth would likely have been due to a low base effect; incoming data paints a rather downbeat picture. In Q1, monthly retail sales grew at a slower pace than in Q4 and PMI data revealed conditions deteriorated on average. Moreover, in March, mining output declined year on year for the 14th consecutive month. In Q2, the South African rand has suffered marked pressure: In mid-May, a diplomatic spat with the U.S.—since resolved—over reports that South Africa sold arms to Russia jeopardized over USD 20 billion in trade between the two countries and prompted the currency to fall to a record low against the USD. Additionally, the crippling power supply crisis due to Eskom’s inability to meet demand has been aggravated by a spike in industrial sabotage this year, weighing heavily on the rand and activity.

In March—the latest month of available data—inflation surprised on the upside and rose to a three-month high of 7.1% (February: 7.0%), further above the upper bound of the South African Reserve Bank’s 3.0–6.0% target. More restrictive monetary policy and the appreciation of the rand from current levels should lead inflation to return to target in H2.