OECD South Africa 1/2022

South Africa

Update on the latest developments

Despite the limited economic impact of the Omicron variant, the uncertainty associated with new wave of infections has made the economic outlook in South Africa very gloomy. South Africa’s travel ban and cancellations by foreign tourists have a significant impact on the tourism sector. Latest indicators suggested that household consumer spending dropped by 2.4% q-o-q in 3Q21, as a result of lower expenditures on durable and non-durable goods, while public spending rose by 0.1% q-o-q in 3Q21. Additionally, exports of goods and services fell by 5.9% q-o-q, while quarterly imports declined by 2.8% in the three months ending September.

Labour market pressures grew as unemployment rose to 34.9% in 3Q21, up from 34.4% in 2Q21, the highest jobless rate since comparable data began in 2008. Indeed in 3Q21, the youth unemployment rate, measuring job-seekers between 15 and 24 years old, hit a new record high of 66.5%.

The annual inflation rate accelerated to 5.5% in November 2021, from 5% in October, above the 4.5% midpoint of the South African Reserve Bank’s monetary policy target range of 3-6%. This marked the highest rate since March 2017, amid increasing transport prices as well as the hike in fuel and food prices. On a monthly basis, consumer prices went up by 0.5% following growth of 0.2% in October 2021.

Near-term expectations

Considering the uncertainties surrounding Omicron, the outlook for South Africa’s economy is skewed more to the downside amid increasing infection and vaccination rates. Moreover, recent political instability, along with headwinds in main trading partner China, could have a significant impact on the economic outlook in 1Q22.

In the meantime, the seasonally-adjusted Absa Purchasing Managers’ Index dropped to 54.1 in December 2021 from 57.2 in November, pointing to a slower expansion of South Africa’s manufacturing activity. Moreover the current reading captured the slowdown in services sector activity in the major trading partners, namely Eurozone amid the surge in COVID-19 infections.

Table 3 – 9: South Africa’s economic growth rate and revision, 2021–2022*, %

                                                                                   South Africa

2021                                                              4.5

Change from previous month            0.0

2022                                                             2.5

Change from previous month             0.0

Note: * 2021-2022 = Forecast. Source: OPEC.