Global Economic Outlook – September 2022 South Africa: A growth recession as inflation rises Economic growth Inflation to peak in 2022 and then Current account surplus back to pre-pandemic return to midpoint of South Africa’s continues as global growth levels. inflation target range. expectations moderate. South Africa is returning to pre-Covid levels of economic Table 17: KPMG forecasts for South Africa growth and is currently facing the inflationary implications 2021 2022 2023 that arose as a direct consequence of the pandemic and the Russian invasion of Ukraine. Interest rates are rising and, GDP 4.9 1. 8 1. 5 as with the rest of the world, growth prospects are being Inflation 4.6 7. 3 6.1 reduced accordingly. Unemployment rate 35.3 34.3 34.7 The South African policy rate has increased from a low of 3.5% in Q3 2021 to a current level of 5.5% and the Source: Statistics South Africa, KPMG analysis. consensus forecast is for a further increase of around 1 percentage point by the end of 2022. These increases would leave the policy rate at the level recorded prior to the onset of the pandemic and have led to a reduction in potential growth level attainable over the near-term. Even though increasing interest rates have resulted in slowing growth prospects, the main contributor in this regard remains the insufficient and inconsistent supply of electricity from South Africa’s energy supplier Eskom, with over half of all business days in the second quarter of 2022 experiencing some degree of load shedding or electricity supply restriction. This barrier to growth has been recognized by the government, which in July announced the scrapping of license requirements for private power generators in a sweeping overhaul of the South African energy industry. However, given the lags associated with implementing large scale energy projects, it will take some time before the effects of these policy changes are realized. South Africa is in a relatively unique position with many of 1 its natural resource exports mirroring those of Russia and consequently it has profited from the rise in commodity prices caused initially by both Covid and, latterly, the conflict in Ukraine. The result of the increase in commodity prices has been an improvement in South Africa’s terms of trade which has led to recent surpluses on its current account since 2020, only returning to deficit in the second quarter of 2022. 1 These include palladium and other platinum group metals, gold, iron ore, coal as well as many other industrial metals. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 51