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  • Writer's pictureDr Roelof Botha

On Balance - Economic Update October

Updated: Jan 15

The downside

The consumer price index (CPI) and the producer price index (PPI) have increased marginally from their recent lows, now at 5.4% and 5.1%, respectively. Hopefully, the Reserve Bank will refrain from raising interest rates again, as both inflation indicators remain within the 3% to 6% target range for inflation.

The eruption of a war between Israel and Palestine has caused the oil price to increase again, which also led to renewed volatility on foreign exchange markets, with the rand hovering around R19 to the US dollar during late October.

The upside

The experience of several days without load-shedding arguably qualifies as one of the most welcome news items of the year. This situation has been made possible by a fortuitous combination of lower demand for and higher electricity supply. As South Africa progresses toward lowering its carbon intensity, a further easing of the energy crisis can be expected.

The latter prospect has also been boosted by the World Bank’s announcement on 26 October of a $1 billion loan to South Africa to assist the transition to a more just and low-carbon economy.

A spokesperson for the National Treasury welcomed the initiative, stating that it would provide much-needed fiscal and technical support, enabling South Africa to pursue new policy priorities in the energy sector. These include stimulating private sector involvement in the energy sector and creating a substantial number of jobs in developing renewable energy.

Growth outlook improves

Other good news may be found in the latest global economic outlook by the International Monetary Fund (IMF), with the GDP growth forecast for South Africa being raised to 1.8%.

A feature of the IMF’s estimates for next year is the superior growth rates expected for emerging markets relative to the advanced economies. Reasons for the more bullish economic outlook for Africa’s most diversified economy include improved prospects for lower electricity rationing, a welcome improvement in the pace of capital formation and fundamental macroeconomic stability, especially regarding relatively low inflation and a public debt/GDP ratio of below 75% (the US ratio is 122%).

Higher trade surplus

Fortunately for South Africa’s balance of payments, the R64 billion loss of export earnings from the mining sector during the first eight months of the year was more than covered by a sterling performance from the other three major export groups, namely agriculture & food, vehicles, and metals.

South Africa Trade Surplus

These three generated R69 billion more in exports than between January and August last year, which played a decisive role in South Africa maintaining its proud trade surplus record of the past three-and-a-half years. Until June, the prospects for another trade balance surplus were fast diminishing, but thanks to bumper export earnings in July and August, the year-to-date surplus has swelled to R33.

Buoyant tourism activity

The recovery of the tourism sector continues unabated, with the income from accommodation at hotels, guest houses, and other facilities rising by 31% between June and August, compared to the same three months last year.

Total income amounted to more than R7.3 billion, with hotel accommodation having re-established its dominant position with a contribution of more than 60% (this share dropped significantly immediately after the COVID-19 pandemic).


Dr Roelof Botha

On Balance by Dr Roelof Botha deliberately emphasizes positive news that, more often than not, confirms the resilience of the South African economy and the immense scope for new business opportunities.

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