Hopes that 2021 would be SA’s big bounce-back year started to waver in early January as horror mounted over the state’s failure to present a cogent vaccine strategy.
Economists started flagging the downside risks to SA’s growth outlook, driven by the absence of vaccines, fiscal sustainability fears, and a resurgence in load-shedding. But some remain optimistic about SA’s growth prospects in 2021. And, crucially, this is irrespective of whether the government makes much progress on the economic reform front.
The above-consensus forecasts of economists such as Standard Bank’s Goolam Ballim and Old Mutual’s Johann Els, who both expect real GDP growth to exceed 4.5% in 2021, are driven by technical base and inventory effects, coupled with expectations of a robust global recovery.
Aside from the technical boost arising from the fact that the economy will be bouncing off an exceedingly low base of about -7%, the other big lift to GDP is expected to come from a powerful swing in the inventory cycle. Firms will be forced to restock after inventories took a record plunge in 2020.
In addition, the global economy and capital inflows are set to remain supportive due to a vaccine-induced recovery in the developed world. These spillovers should take hold in the second half, supporting SA in terms of export demand, commodity prices, rand stability and credit risk.
Also encouraging is that the 2020/2021 budget is headed for a substantial revenue overrun. This will create the fiscal space to pay for vaccines and allow the state to reduce bond issuance while obviating the need for draconian tax hikes. As long as the government continues to hold the line on the public sector wage freeze, this makes further sovereign credit rating downgrades unlikely.
The bears (who see growth coming in below 3% in 2021) tend to emphasise SA’s vaccine bungle, load-shedding and the dire state of the labour market — the economy shed a net 1.7-million jobs in 2020 and household income took a huge hit.
The bulls counter that most of the jobs lost were among lower-income workers (muting the effect on total consumption), that higher-income earners were insulated by the stock market rally, and that by the end of 2020, household income had already recovered a lot of lost ground. They expect household consumption to pick up modestly in 2021 and next due to pent-up demand.
But even the bulls agree that SA’s vaccine rollout and the extent of load-shedding will be decisive in terms of our economic recovery. Key will be not just the prevalence and effectiveness of vaccines, but whether the government can avoid responding to ongoing waves of the pandemic with stringent and irrational lockdown restrictions.
Finally, there are two big reform items that if ticked off could also shift the needle on growth: the allocation of spectrum and energy reform. Movement has been in the right direction, but glacial. Last week’s state of the nation address suggests the pace could finally pick up.
The bulls think this could lay a basis for faster medium- to long-run growth if coupled with a credible infrastructure drive that draws in the private sector, the centrepiece of the government’s economic recovery plan. The bears will believe it when they see it.
Even so, all is not lost. If the government can avoid scoring any more lockdown own goals, the economy could bounce back nicely in 2021. But whether that growth is sustained and increased over time will depend on whether the pace of economic reform is accelerated.
Stanlib chief economist Kevin Lings puts it well: “The combination of a resurgence in global growth, a substantial pickup in global trade, strongly rising commodity prices, low domestic inventories, the willingness on the part of the private sector to partner with the government in re-invigorating the economy, and the overwhelming need to improve infrastructure, is an unbelievable opportunity for SA to turn adversity into success. If only the political authorities would be willing to grasp it”.
• Bisseker is a Financial Mail assistant editor.
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