South Africa is likely to see a subdued year of growth in 2022, but certain key events such as the ANC’s elective conference in December could have a significant impact on the economy.
Credit ratings agency Fitch forecasts that the ongoing impact of the Covid-19 pandemic, fading base effects, and persistent structural constraints will see the country’s economic growth slow to 2.1% in 2022. It added that poor labour market conditions will cap private consumption growth.
The rating agency said that government consumption and investment will provide some tailwinds to economic growth and that the South African Reserve Bank (SARB) to maintain a hawkish bias over the course of 2022.
Key to this is that Fitch anticipates president Cyril Ramaphosa to face continued opposition from leftist elements within the ruling African National Congress (ANC), but to survive a leadership challenge at the party’s elective conference in December 2022.
“Markets broadly anticipate such an outcome as well, and that South Africa will follow a path of fiscal consolidation,” said Investec chief economist Annabel Bishop.
“Should Ramaphosa not retain ANC leadership at the elective conference at the end of this year the rand would likely collapse as foreigners disinvest.”
Bishop said investors would fear major fiscal deterioration under a change of president, as the ANC’s Radical Economic Transformation (RET) faction and other left-leaning political forces are not expected to continue to seek to narrow the fiscal deficit from close to -6.5% currently toward 3% of GDP over the next five years.
South Africa’s ratio of government debt to GDP is expected to be reined in eventually as well, with debt stabilising. However, eliminating the deeply popular president from the leadership of the ANC, Fitch said, would likely see ‘slower progress on structural reforms’.
The ANC’s poor performance in the 2021 local government elections is likely to affect both growth and the fiscal trajectory of the country, say economists at Momentum Investments.
“Some political commentators have warned that the results may tempt the introduction of more populist policies as the ruling party attempts to win back defected voters.
“If the focus has indeed shifted from localised issues, such as service delivery, to concerns over national policy, this would pose a further threat to government’s fiscal consolidation and debt stabilisation goals.”
Economists at the Stellenbosch University’s Bureau for Economic Research (BER) also expect the ANC’s internal fighting to be a key focus over the coming year.
“The Presidency and Tourism Minister Lindiwe Sisulu issued conflicting statements after a meeting between President Cyril Ramaphosa and Sisulu regarding the minister’s recent controversial op-ed on the constitution and the judiciary.
“We are likely to see more of the same throughout 2022 as opposing factions jostle for positions ahead of the ANC’s elective conference in December 2022,” it said.