South Africa: A fragile economic recovery

After an unprecedented contraction in activity in 2020, the strong rebound in 2021 did not allow South Africa to return to its pre-crisis level of GDP contrary to most emerging economies.

In 2022, activity should remain subdued and growth below 2% in the medium term. The economic outlook remains largely constrained by the need for fiscal consolidation in order to contain the high risk of debt distress, the tense socio-political climate, and structurally by strong infrastructure constraints, first of which the electricity supply.

The shock induced by the conflict in Ukraine is also exerting significant pressures that could make fiscal consolidation efforts difficult. The acceleration of inflation is fueling socio-economic difficulties and the demands of the population vis-à-vis the authorities (request for subsidies, expectations regarding wage increases, etc.). However, a potential budgetary slippage raises fears of an unsustainable debt increase while concerns about its level, dynamics and cost are already present.

Although the rise in commodity prices should allow for fiscal and exports revenues, the economic environment entails significant downside risk factors. The economic recovery is therefore subject to a number of uncertainties and the authorities’ commitment to the continuation of the reform process will be key in strengthening investor confidence, overcoming obstacles to growth and improving the budgetary balance.

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