Victus Group

What does 2021 have in store for the SA economy?

Jan 2021

2020 started with South Africa in the midst of a crisis of low economic growth coupled with high unemployment levels – enter the pandemic and one of the most restrictive lockdowns experienced anywhere in the world.


The effects of the government’s response to the outbreak of COVID-19 sent unemployment levels to new record highs and forced government to borrow billions from local and international institutions to try and make up for lost revenue.

Even with many countries already rolling out COVID-19 vaccinations, most economists agree that global economic recovery may only truly begin in 2022, or possibly even 2023. The massive levels of unemployment that is the result of thousands of small and medium businesses closing their doors and cost-cutting by larger businesses will undoubtedly influence the rate of economic recovery around the world.

The South African economy is very much dependent on the state of the global economy and the above, together with the effects of a second wave of infections, the availability of a vaccine, the current low interest rate environment, and the risk of a devastating debt crisis and further credit rating downgrades, are some of the aspects to consider when reflecting on the fortunes of the South African economy for 2021 and beyond.

With regards to local economic growth, Nedbank recently reported that it has revised its real gross domestic product (GDP) forecasts for 2020, 2021 and 2022 to -8.1%, 3% and 2.2% respectively. At these growth rates, South Africa will only return to 2019 output levels by 2024. These expectations are shared by the South African Reserve Bank, which expects a contraction of 8% for 2020 and growth of 3.5% in 2021 and 2.4% in 2022.

With the vaccine being rolled out on a limited basis, social distancing will probably be in place for the remainder of the year, which will affect the rate of recovery of many sectors of the economy. While the travel and tourism sectors were expected to be some of the first to experience a reversal of fortunes, the threat of further travel restrictions may put a spanner in the works in this regard. The recovery of the entertainment and events industries will also probably be a protracted affair.

According Investec Chief Economist, Annabel Bishop, the bank does not expect to see a full recovery in the South African economy until 2023 and, considering inflation adjusted terms, that could take even longer, out to 2025. “That’s of course, if we don’t see a sudden massive ramp up in improving the ease of doing business in South Africa; massive productivity coming through from the civil service and of course also the winding down of a number of other impediments to economic growth that still persist,” Bishop says.

Deputy Reserve Bank Governor, Fundi Tshazibana, recently told Investec that 2021 would largely be affected by what happened to productive capacity in South Africa, what happens to the level of investment that companies put into the economy and what will happen to electricity supply: “We did see during the course of 2020 that as the economy opened up, we started to have a few bottlenecks on the electricity side. We have been experiencing electricity supply challenges, so if those supply challenges were to resurface in 2021 that would have an impact on how quickly our economy recovers.”

From the above it seems clear that, even if we were to see a successful nationwide vaccination process, we would first need to sort out the structural problems that have persistently plagued our economy for the last number of years and that were very much prevalent at the beginning of 2020, before we can start to see a lasting and significant improvement in economic growth and stability.

The information contained in this article is of a general nature and intended for information purposes only. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or other issue. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner/adviser to take into account your particular investment objectives, financial situation and individual needs.