South Africa’s economy is forecast to shrink by 7.8%, with inflation expected to hover around 4.5% this year, Finance Minister Tito Mboweni said on Wednesday.Mboweni said this ahead of the tabling of the country’s Medium-Term Budget Policy Statement in parliament.
According to the minister, the low economic growth was made worse by the Covid-19 pandemic, with measures taken to protect public health resulting in steep declines in consumption, investment and exports.
“Gross Domestic Product growth is expected to rebound to 3.3 % in 2021, and to average 2.1 % over the medium term. Based on this projection, the economy will only recover to 2019 levels in 2024,” Mboweni said.
He added: “The sharp downturn in the domestic economy follows a decade of economic stagnation, which has complicated South Africa’s recovery.”
The minister said in the past 10 years, the country’s real GDP growth averaged 1.4 %, while the population grew by 1.6 % per year.
“In this context, there is a need to forge a national consensus through a social compact that addresses both short- and long-term structural growth challenges.
“In recent months, government, business, labour and civil society have developed an economic recovery plan.
“Recognising that many plans fail to translate into action, the Presidency and the National Treasury have established ‘Operation Vulindlela,’ an initiative to accelerate effective implementation of structural reforms to boost the rate of sustainable economic growth,” he said.
“Inflation is forecast to fluctuate around the 4.5% midpoint over the medium term in line with moderating inflation expectations. Below-potential economic output and weak imported inflation are also expected to keep inflation contained,” the minister said.
Household expenditure has evolved in line with lockdown restrictions, with high-contact, consumer-facing sectors (retail, leisure, alcohol and tobacco) experiencing a sharp drop due to Covid-19 containment measures, the minister noted.
As for the inflation, this “is forecast to fluctuate around the 4.5% midpoint over the medium term in line with moderating inflation expectations.
“Below-potential economic output and weak imported inflation are also expected to keep inflation contained,” the minister said.