South Africa: Economic outlook for 1H21

Global economic growth recovery is anticipated to continue into 2021. However, the resurgence of COVID- 19 infections will weigh on the extent of such economic recovery as caution holds back much-needed household and corporate expenditure. However, progress in the development of a vaccine is encouraging and a fully approved and effective vaccine is expected to be widely available by 2Q21.

The impact of the pandemic on South Africa’s fragile public finances has been devastating. As a result, the much-anticipated Economic Reconstruction and Recovery Plan was released by the President of South Africa on 15 October 2020. If fully implemented, the plan is expected to lay a solid foundation for a higher economic growth path in the longer term.

During 2020, the ZAR depreciated to an all-time low (1H20) before it retracted significantly (2H20). The reversion to a riskier financial market environment during 2H20, as a result of the easing of global COVID- 19 lockdown restrictions, together with the uncertainty associated with the US elections supported the ZAR.

The rand/dollar exchange rate is expected to remain volatile during 2021.

During November 2020, further sovereign credit rating downgrades by both Fitch and Moody’s have increased South Africa’s debt service cost above the levels estimated in the recent Medium-Term Budget Policy Statement (MTBPS).

However, Standard & Poor affirmed their current sovereign credit rating for South Africa.

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