By South Africa has seen the worst economic performance in the fourth quarter of 2023, due to load-shedding, port and rail challenges that prevented the country to effectively compete on a global scale.
The South African Reserve Bank (SARB) Governor Lesetja Kganyago painted a rather bleak picture on the economy of South Africa. While major central banks in the globe are making cuts on their rates and some yet to cut, South Africa is unable to follow the global trend due to its fragile economy.
According to the Governor, the South African economy is taking a different direction in the global economy; this is indicated by the accelerated rise in service inflation, which is currently the highest since 2019. This reflects that South Africa is gradually shifting from goods and joining the global trends of services, with the medical aid component being the highest.
“The most recent inflation numbers showed yet another delay on the way back to our 4.5% objective, with headline up to 5.6% in February. This is nearer the top of our target range than the midpoint. Core inflation also rose, to 5.0%,” said Governor Lesetja Kganyago.
Load-shedding and the problems at ports and rail cost the country R1 billion a day according to the Minister for Mineral Resources and Energy Mr Gwede Mantashe, this has affected output and is now reflective on South Africa’s economic performance. Kganyogo is somewhat optimistic of growth during the current fiscal year.
“Our forecasts indicate a modest growth acceleration from this year, as these supply-side constraints relax. In particular, we expect the load-shedding burden will ease somewhat. While we estimate electricity shortages took 1.5 percentage points off GDP last year, we think this will moderate to 0.6 percentage points this year and 0.2 percentage points in 2025.
Overall, we see growth at 1.2% this year, improving to 1.6% by 2026. These projections are better than the 2023 outcome, but below longer-run averages, which are around 2%,” he said.
Sighting a number of challenges and global trends affecting domestic economy; Kganyago said the Monetary Policy Committee (MPC) made a unanimous decision to keep the repo rate unchanged at 8.25%.
“At this level of rates, the policy stance is considered restrictive, consistent with the inflation outlook and the need to address elevated inflation expectations. The inflation and repo rate projections from the Quarterly Projection Model remain a broad policy guide, changing from meeting to meeting in response to new data.
Committee decisions will continue to be data dependent, and sensitive to the balance of risks to the outlook. Stabilising inflation at the mid-point of the target band will improve the economic outlook and reduce borrowing costs,” said Governor Lesetja Kganyago.
