The South African Reserve Bank (SARB) Monetary Policy Review (MPR) released this week showed that the bank expects the economy to return to 2019 levels only after 2022. But I think the SARB may be too optimistic given the structural constraints to economic growth and the uncertainty about the planned fiscal consolidation path by the National Treasury.
There are three main reasons why the recovery in South Africa’s growth to 2019 levels will likely take longer than the SARB is expecting. Most of the reasons are domestic but there is one that is out of domestic policymakers’ control and that is the pace of the trading partner’s recovery.
In this respect, the International Monetary Fund hinted that it will likely revise its global growth forecast for 2020 upwards later this month when it releases its updated forecasts. The multilateral lender cites better than expected economic data in the third quarter following a synchronised and unprecedented contraction in the second quarter. However, the IMF expects the global economy to return to 2019 levels in the fourth quarter of 2021.
Given the domestic constraints, South Africa’s economic recovery will likely lag the global recovery. Therefore, if the global economy is only expected to recover back to 2019 levels by the end of 2021, other things going well domestically, South Africa’s return to pre-covid-19 will most likely be in 2022.
Sadly, the other things are not going well, and they will delay the recovery further beyond 2022. The planned fiscal consolidation is too aggressive and will be a drag on economic growth. Even with n economy in deep recession, Eskom is still not able to provide sufficient energy. These will remain binding constraints that will prolong the recovery to 2019 levels well beyond 2022. I believe it will be 2023 or 2024.
An extended version of this article will appear in the Business Day tomorrow, Friday the 9th.