SA Reserve Bank governor Rashad Cassim. Picture: SARB
The end to regular power outages in South Africa may lead to an upward revision to economic-growth forecasts and help in the fight against inflation, the nation’s central bank said.
South Africa’s has recorded 155 days of sustained electricity supply, bringing an end to record load shedding that crimped economic growth and forced businesses to raise prices to cover the cost of emergency power.
“There’s a growth side and there’s an inflation side; there may be a double whammy, there may be a good story here,” Deputy Governor Rashad Cassim told reporters in Johannesburg on Thursday.
“Let’s hope that for the first time, given the fact that load shedding, or the lack of it post the election, that there will be an upward revision of the forecast and that will be very good for the economy.”
The energy crisis and the demise of rail, ports and other infrastructure — exacerbated by years of poor governance — have hamstrung Africa’s most industrialized economy. Gross domestic product expanded by an average of less than 1% over the past decade — less than needed to cut a 33.5% unemployment rate, one of the world’s highest.
“If we deal with these structural constraints, we can lift our GDP growth potential to 3.5%, which would basically mean that we can continue to accelerate our growth at least until we hit that 3.5%,” Governor Lesetja Kganyago said.
“By solving those structural constraints, you are providing the space for monetary policy to provide the support for the economy.”
The central bank currently expects the economy to grow 1.1% in 2024 and 1.5% next year, and forecasts inflation to slow to below the 4.5% midpoint of its target range where it prefers to anchor expectations in the fourth quarter. It was at 4.6% in July and the spread between the South African Reserve Bank’s policy benchmark and the annual inflation rate is at its highest level in 18-years.
A continued slowdown in inflation would boost the case for interest rate cuts, which would also help stimulate growth.
Kganyago has repeatedly said that the monetary policy committee would only be comfortable lowering borrowing costs when inflation eases sustainably toward 4.5%.
Forward rate agreements — used to speculate on borrowing costs — are pricing in about 62 basis points of interest-rate cuts by year-end from the current level of 8.25%. The monetary policy committee will announce its next interest-rate decision on September 19.
