The past two years have been a real challenge for the South African economy, as the pandemic put pressure on businesses and their operations. More than 2.8 million COVID-19 cases and over 83,000 deaths have been reported by the time of writing, putting the country among the worse hit by the pandemic on the African continent.
Now that the third wave of the pandemic is showing signs of weakening, the economy continues to recover and the latest GDP rebase adds new positive news for South Africa. The near future remains uncertain globally, on the back of rising inflation and weakening economic growth, but in the short term, there has been good news from South Africa.
South Africa GDP Rebased
At the end of August 2021, South Africa announced an update on how the gross domestic product is being calculated. Based on the new formula, the economy is $37 billion larger than previously assumed. Rebasing is done by Statistics South Africa once every 5 years. The prior occasions have been in 1999, 2004, 2009, and 2014.
With the latest GDP rebase, the economy is 11% bigger, with a positive contribution to the ratio of the national debt as a percentage of GDP. The current estimate is that the debt-to-GDP ratio will remain below 80% through 2023-2024.
The pandemic forced the government to provide fiscal support for the economy and the budget deficit for the current fiscal year is currently seen at 8.4% of GDP. All the economic numbers have improved since the reference year for the GDP calculation is no longer 2010 but 2015.
Lower pandemic influence
South Africa went through 3 waves of COVID-19 and the latest daily release showed 8,410 new cases have been found. However, the peak of the 3rd wave seems to have been established in July, and new cases have dropped steadily ever since.
People were faced with significant changes, especially when it comes to their daily work. South Africa is among the countries with the highest unemployment rate and because of that, many were looking for new avenues, such as those with the means turning to online trading platforms in an attempt to benefit from opportunities in the global financial markets.
ZAR rises as USD is again under pressure
Activity can be noticed in the currency space as well, where the South African Rand continues to rise against the US dollar. The Jackson Hole Symposium was the main event in August and since the FED Chair Jerome Powell kept his dovish tone, dollar bids reversed and ZAR got closer to levels not seen since August 2021.
The currency strengthened as the South Africa Reserve Bank can lift rates in the following months, motivated by strong inflation figures. However, a stronger currency can act as a headwind for economic recovery, creating risks in the near term. This is not an isolated case as other countries are facing similar issues on the way out of the pandemic.
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