SA unrest has negated improved GDP growth recorded in Q1 – Reserve Bank

Image credit: Twitter/SA Reserve Bank

The South African Reserve Bank (SARB) has warned of the impact of the recent unrest on the economy even as it maintained the repo rate at 3.5% (and interest rate at 7%).

In the latest Monetary Policy Committee (MPC) statement on Thursday (22 July), SARB Governor Lesetja Kganyago said the unrest has “fully negated” the improved GDP growth seen in this year’s first quarter.

2021 GDP forecast remains 4.2%

“The domestic economy grew by 4.6% in the first quarter of 2021, much stronger than the 2.7% expected at the time of our May meeting,” he said.

“That outcome reflected better sectoral growth performances and robust terms of trade. Commodity prices have remained high, sustaining income gains despite higher oil prices.

“However, recent unrest and economic damage could have lasting effects on investor confidence and job creation. We estimate the unrest to have fully negated the better growth results from the first quarter, resulting in an unchanged estimate of 4.2% for growth in 2021.”

The unrest was sparked by former President Jacob Zuma’s imprisonment earlier this month. It caused economic disruption in parts of KwaZulu-Natal and Gauteng as hundreds of businesses were vandalised and looted.

Kganyago said the unrest will likely slow South Africa’s post-COVID-19 pandemic economic recovery further. Nevertheless, SARB maintained its May prediction that the economy will grow by 2.3% in 2022 and 2.4% in 2023.

Growth is likely to be supported by high export prices, stronger household incomes, a better investment outlook and supportive global conditions.

However, risks include the recent unrest and their impact on vaccinations, a longer-than-expected lockdown, limited energy supply, and policy uncertainty.

Repo and interest rates unchanged

The Committee revised its forecast for headline consumer price inflation for 2021 to 4.3%, up slightly from May’s forecast of 4.2%. It lowered its core inflation forecast for 2021 to 2.9%, down from 3.0%.

“Despite higher expectations and continued upside risks, the Committee expects inflation to be contained in 2021 and 2022, before rising to around the midpoint of the inflation target range in 2023,” Kganyago said.

“Against this backdrop, the MPC decided to keep rates unchanged at 3.5% per annum. The decision was unanimous.”

Be the first to comment

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.