South Africa’s gross domestic product (GDP) growth is forecast to slow to 2.1% in 2022 off a higher base in 2021; however, considerable uncertainty surrounds the outlook for next year, say economists at Nedbank.
In a research note on Tuesday (19 October), the bank said that local households still lack confidence, and their finances are under mounting pressure. This means that much depends on a turnaround in the labour market.
“Public sector employment and wages are expected to decline as the government strives to reduce the budget deficit. This leaves only the private sector,” it said. “Some private firms have managed to restore profitability and strengthen balance sheets sufficiently to consider taking on more staff and offering better wage increases.”
However, conditions in the most labour-intensive industries – notably travel, tourism, entertainment, hotels, other accommodation, food services, and catering – remain perilous, Nedbank said.
“The survival of these industries depends on the country’s ability to defeat Covid, which will allow the permanent lifting of health restrictions. The key is faster vaccinations.
“On this front, inoculation rates improved with the involvement of private health institutions. So far, around 14 million people have received at least one jab, and about 10 million people have been fully vaccinated.”
Even so, the government will not achieve its target of immunising 40 million people by the end of this year, Nedbank said.
“Bottlenecks around the availability and distribution of vaccines have largely been resolved. The main obstacle to faster vaccinations appears to be vaccine hesitancy, which is not unique to South Africa.”
The bank noted that governments worldwide are fighting the barrage of misinformation about vaccines spread through the internet and social media. It is critical that government and all other stakeholders find a way to overcome this obstacle, it said.
“Only when the bulk of the population is vaccinated will foreign tourists return in large numbers. If South Africa manages to achieve its vaccine targets in mid-2022, conditions in the high-contact industries could improve significantly, boosting job creation and consumer spending.
“If not, bankruptcies will increase, resulting in new waves of retrenchments. Our model suggests slow employment growth, lagging GDP growth significantly, with total employment only returning to pre-crisis levels around the second quarter of 2024.”
Added to this, inflation is rising, particularly prices of essential goods and services, which, together with the expected rise in interest rates, pose downside risks to consumer spending in 2022, the bank said.