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HomeBusinessEconomySouth Africa's economy loses momentum amid record power cuts

South Africa’s economy loses momentum amid record power cuts

– Reforms are urgently needed to resolve the energy crisis and tackle structural unemployment

By the South Africa Team, IMF African Department

SOUTH AFRICA – Newly released data shows the South African economy grew by 0.4 percent between January and March this year. Crippling power cuts, volatile commodity prices and a challenging external environment have contributed to the country’s weak growth performance.

By year-end, we project real GDP growth to fall sharply from last year. Though we expect growth to pick up again in 2024, the pace is too slow to reduce unemployment, which at 32.9 percent remains close to an all-time high.

The country has faced rolling blackouts after years of mismanagement of the state-owned utility, Eskom, prompting the authorities to ease the registration process and licensing requirements for energy production to encourage private sector investment. The government also announced a three-year debt relief arrangement to help Eskom establish its commercial viability and mitigate the energy crisis.

Additional far-reaching reforms are needed to achieve job-rich, inclusive, and greener growth. These include improving the country’s energy and logistical constraints, reducing barriers to private sector investment, addressing structural rigidities in the labor market, and tackling crime and corruption.

The country’s elevated public debt level – one of the highest among emerging markets – limits the government’s ability to respond to shocks and meet growing social and development needs. Stabilizing the country’s debt and creating room in the budget for targeted social spending and public investment will require reducing the government wage bill and transfers to state-owned enterprises.

Like elsewhere, persistently high food and energy prices have pushed up inflation and raised inflation expectations. Monetary policy normalization should continue to keep inflation expectations anchored and bring down headline inflation to the midpoint of the South African Reserve Bank’s 3–6 percent target range.

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