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South Africa's road to 2024 elections: Long-term macro outlook remains weak

  • We highlight our macro presentation from a recent webinar on South Africa’s road to the 2024 elections

  • Short term, commodity prices have improved fiscal and external accounts and SARB rate hikes will help control inflation

  • Longer term, reforms look unlikely as the political temperature heats up so growth will continue to be stagnant

South Africa's road to 2024 elections: Long-term macro outlook remains weak
Tellimer Research
28 January 2022
Published byTellimer Research

On 26 January, we participated in a Menas Associates webinar entitled “South Africa's Road to 2024: Local Elections, Political Violence, and the Future”. Below, we provide a brief summary of South Africa’s macro outlook as presented during the webinar, as well as some brief commentary on yesterday’s monetary policy committee (MPC) decision. View our slide deck here:

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South Africa’s growth outlook remains subdued absent significant structural reforms, which seem increasingly unlikely as the marginal momentum displayed in mid-2021 fades ahead of the ANC’s National Conference in December and national elections in 2024 (see the webinar recording for a more detailed analysis of the political environment).


Inflation expectations are relatively well-anchored, despite the recent uptick in inflation. The South African Reserve Bank (SARB) nonetheless decided to follow the broader EM trend with a 25bps hike yesterday, in line with market expectations, keeping its growth forecasts unchanged while revising up its 2022 inflation forecast from 4.3% to 4.9% (although it is still expected to moderate to 4.5% in 2023 and 2024).

Notably, the SARB’s Quarterly Projection Model (QPM), which serves as a broad policy guide, projects a more dovish rate path than it did in November. Still, markets are continuing to price in a relatively hawkish hiking cycle, projecting nearly 200bps of hikes over the next year. We think this is overly aggressive, notwithstanding the hawkish statements from the Fed on Wednesday, with actual hikes by the SARB likely to be materially less than that in 2022 if inflation evolves according to forecasts. That being said, risks are undoubtedly to the upside, including from rising global commodity prices, the potential impact of capital outflows on the ZAR, domestic wages hikes and administered prices like electricity.

Rate projections

South Africa’s Medium Term Budget Policy Statement (MTBPS) in November broadly struck the right tone, with half of the windfall revenue from high commodity prices used to fund additional spending (including a Covid and riot relief package) and the other half used to consolidate the budget. The result is vastly better fiscal numbers than the prior MTBPS, partially due to improved revenue but also due in large part to an 11% GDP rebasing (contributing to 65% of the deficit and 85% of the debt reduction).

However, looking ahead, there are still large risks pertaining to wage negotiations and the proposed Basic Income Grant, which will likely cause slippage in the years ahead (we should have more clarity on these issues after the February budget statement). Further, the restructuring of struggling state-owned utility Eskom continues to face delays, posing an additional risk to the budget and growth (with load-shedding reaching record levels in 2021).


South Africa’s balance of payments improved vastly in 2021 on the back of improved terms of trade, with the current account reaching a three-decade-high surplus of 3.8% of GDP. While it is expected to move back into deficit territory over the medium term, the SARB has revised its forecasts upwards substantially since the last MPC meeting.

Current account

This will provide a tailwind for ZAR, which has outperformed its EM peers over the past year amid high commodity prices. However, the currency will remain vulnerable in 2022 amid developed market monetary tightening (it is down c2.5% since yesterday’s Fed meeting), and continued outperformance on the hard currency front will require ambitious reforms over the medium term that, in our view, are unlikely to materialise.


Related reading

South African Reserve Bank follows the trend with a 25bps hike, December 2021

South Africa budget strikes right tone, but delivery will be challenging, November 2021

South Africa: Cabinet reshuffle creates fiscal uncertainty, August 2021

The stark inequality behind South Africa’s riots, July 2021

South Africa: Reforms show first sign of life, June 2021

South African Reserve Bank holds rate; bias towards stable rates in 2021, May 2021

Our discussion with the South African Reserve Bank – inflation concern overblown, April 2021

South African budget surprises positively but lacks substance, February 2021

South African Reserve Bank resists temptation to cut, January 2021

South Africa’s medium-term budget disappoints, October 2020

South Africa has to solve the Eskom problem, October 2020