According to Prof Raymond Parsons from the North-West University (NWU) Business School, the good news is that GDP growth of 0,4% in the first quarter of 2023, following on the revised -1,1% growth in the fourth quarter of 2022, has enabled the South African economy to avoid a technical recession – in other words, two consecutive quarters of negative growth.
“Economic growth has become highly volatile in recent quarters, mainly as a result of more aggressive power outages and other economic headwinds. It is a tribute to the resilience and adaptability of the private sector that a recession has at least been averted, given the adverse economic circumstances that needed to be navigated. The continued positive yet low fixed investment growth is also welcome and must be nurtured,” he added.
However, the bad news is that the growth outlook for 2023 remains weak, with most forecasts converging around 0,2% to 0,3% for the year as a whole. For example, the Absa Purchasing Managers’ Index for May (1 June) showed that, in addition to the downbeat assessment of the current environment, respondents turned notably more negative about business conditions in the near future. Nedbank warned in its Economic Insights (30 May) that the aggressive rise in interest rates will increase the financial strain on households and dampen demand for credit, and may ultimately trigger another wave of job losses.
An elevated level of uncertainty therefore still prevails about South Africa’s economic outlook and direction because of a number of these recent well-known negative factors affecting the country’s performance. Geo-political tensions emerging in the second quarter of 2023 as a result of the country’s controversial stance on the Russia-Ukraine conflict have also imposed a higher risk premium on South Africa and have already negatively affected investment sentiment in the current quarter. The NWU Business School Policy Uncertainty Index (PUI) for the second quarter of 2023 will be available at the end of June to calibrate the latest changes in policy uncertainty.
Prof Parsons also indicated that to improve the country’s economic outlook and to underpin the anticipated modest cyclical upturn from 2024 onwards, the issue of confidence remains paramount. Amidst the various proposed economic remedies for South Africa, the biggest inherent challenge is to rebuild confidence among business and consumers. Restoring confidence is half the battle for official decision-makers as they seek to implement agreed solutions. Confidence-building is said to be the cheapest form of economic stimulation.
