2022 was another tough year for SA economyDecember 24, 2022
2022 was another tough year for the South African economy, with high inflation followed by steep repo rate increases to keep inflation in check and gross domestic product (GDP) affected by load shedding and supply chain constraints, while unemployment and business confidence remained low.
Inflation averaged 4.5% in 2021, but nobody was prepared for the increases that followed in 2022.
Tough year for SA
After moderating in January, with headline inflation at 5.7% year-on-year compared to the 5.9% recorded at the end of 2021, it stayed the same in February before moving higher to 5.9% in March, driven primarily by the strong monthly increase in fuel prices.
In April, the inflation rate remained the same before inflation pierced through the upper end of the South African Reserve Bank’s target range to reach 6.5% in May, the highest since early 2017.
Headline inflation continued to heat up further in June, reaching 7.4% and then jumped to 7.8% in July, a 13-year high.
Inflation then eased to 7.6% in August, thanks to fuel price decreases and then to 7.50% in September before reverting to 7.6% in October and dipping by 0.2 ppt to reach 7.4% in November.
Food prices and transport costs were the main contributors to the increases in the inflation rate.
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Repo rate increases in 2022
The Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) raised the repo rate by 25 basis points to 4% at its first meeting of the year in January and by another 25 basis points to 4.25% at its second meeting.
In May, the Sarb delivered a widely expected 50 basis points increase, the first 50 basis points hike since January 2016.
At its July meeting, the Sarb hiked interest rates by 75 basis points, bringing the repo rate to 5.5% and again in September and November with another 75 basis points each time, ending the year at 7%.
Economists expect that the repo rate will reach 7.5% in the first quarter of 2023.
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Economic growth in 2022
Good news at the beginning of the year was the boom in real GDP during the first quarter.
The economy rose to pre-pandemic levels by a staggering 3.0% year-on-year before the second quarter rolled around.
Harsh Covid lockdowns in China exacerbated the Ukraine war-induced supply chain constraints, load shedding and the flooding in KwaZulu-Natal disrupted domestic business activity.
It was therefore no surprise that GDP contracted by 0.7% in the second quarter, shrinking the size of South Africa’s economy to smaller than it was before the pandemic.
However, the South African economy beat market expectations by rebounding in the third quarter, with real GDP once again restored to above pre-pandemic levels at 2.2%, with eight out of ten industries recording positive growth on a quarterly basis.
GDP figures for the fourth quarter, when load shedding became a daily occurrence, have not been released yet.
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A reasonable ride for the Rand in 2022 until that report…
Although the Rand trundled along the whole year, it remained vulnerable to pressure and has weakened to levels last seen in 2020 due to intense power outages, and heightened global risk aversion.
In April, the Rand lost ground due to load shedding, Covid-19 and the KwaZulu-Natal floods and became the worst-performing currency in the world as it lost 8.5% of its value against the US dollar, while it also fell in September to R17.75, mainly due to US risk perceptions and a firm dollar.
However, these increases were nothing compared to early December, when the Rand lost almost $1, the most in six years, due to the independent panel’s Phala Phala report that found that the president probably contravened the Constitution and threatened to fall even further if President Cyril Ramaphosa resigns, trading at R17.95 after the resignation rumours started.
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Unemployment remained high in 2022
Unemployment was a major problem in South Africa before the pandemic and increased during Covid-19.
After picking up as the economy opened up again with six successive quarterly increases, the country’s official unemployment rate dipped to 34.5% in the first quarter although the marginal decline did not detract from the seriousness of South Africa’s unemployment crisis.
The unemployment rate dropped unexpectedly in the second quarter to 33.9%, despite the devastating flooding in a key economic hub during April and intensified power outages.
It also decreased for the third time in a row in the third quarter to 32.9%, although the official unemployment rate remains above pre-pandemic levels and unsustainably high.
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Business confidence in 2022
After registering at 43 points for two successive quarters in 2021, South Africa‘s business confidence improved to 46 points during the first quarter as most of the surveys were conducted in February before Russia’s invasion of Ukraine.
However, business confidence deteriorated in the second quarter to 42 points after heavy flooding knocked business activity in April on the back of heightened global uncertainty.
Business confidence dropped even further in the third quarter to 39, with 61% of respondents displeased with prevailing business conditions.