Recently, ABSA upwardly revised its near-term GDP growth forecast for South Africa by 0.4 percentage points on the back of healthier-than-expected economic activity in the first half of this year.
In its South Africa Q3 2023 Quarterly Perspectives, the bank revealed that it now forecasts real GDP growth of 0.7% in 2023. One of its expectations is also for the economy to grow by 1.6% in 2024 – 0.3 percentage points higher than previously forecast.
ABSA revealed that despite the sharp escalation in load-shedding in H1 2023, economic activity in the period was healthier than expected. As much as the electricity supply will continue to be a growth risk, the bank believes that ongoing efforts in private generation will make the economy more resilient over time.
However, overall growth momentum will most probably remain weak since weak business confidence constrains a generalised investment cycle, while household consumption growth will also be under pressure. The bank is looking to headline inflation to ease further but said uncertainty remains high. “We expect headline inflation to ease further, reaching 5.0% by December 2023 and averaging 4.8% in 2024, partly driven by further moderation in food and core inflation,” it said.
ABSA also said: “We believe the SARB’s hiking cycle has ended and that the next move will be down. We expect the SARB to cut rates from March next year.”
With that being said, the bank mentioned that global interest rates are likely to remain higher for longer, and South Africa is gradually becoming a riskier investment amid weak growth and deteriorating public finances.
What this leads to, is ABSA expecting a terminal repo rate of 7.50%, higher than its previous forecast of 7.00%.
In regards to public finances, Absa now forecasts a revenue shortfall of R39 billion (previous forecast: R25 billion) in 2023/24 compared with the 2023 Budget target.
Counting Eskom’s debt relief above the line, Absa expects a main budget deficit of 6.6% of GDP in 2023/24, up slightly from its previous forecast of 6.3%.
“We continue to see risks to our baseline forecast as skewed to the downside.”