The South African economy is expected to stagnate in 2023, roughly 2.5-3.0pps below the average growth for Sub-Saharan Africa. The activity rates of the extractive sector will lag behind those of the manufacturing sector. In spite of a favorable price trend for metals brought on by the Chinese reopening and increased demand for safe havens due to geopolitical uncertainty, the production of mining products (particularly coal) may continue to be subdued.

Annual inflation hit 6.9% in 2022, with food costs well in the double digits since Q3 2022 and fuel and transport prices providing some downward pressure from last year's highs. Food prices have increased by more than 25% on average compared to January 2020. The inflation rate is still above the upper bound of the 3.0-6.0% band set by the central bank, which could trigger another 25–50bps increase in the key policy rate to 7.50–7.75% before a window of opportunity for a pause opens. It is probable that inflation will then stabilize at around 6%, maintaining a differential from long-term global inflation of roughly 3-4% and allowing for a gradual depreciation of the local currency, the rand.

Electricity generation poses the heaviest drag ongrowth, with the national utility being able to work at only half of its nominal capacity. This lack of reliable electricity supply hinders businesses, industry and households from realizing their potential. Policies to increase the supply of electricity in the private sector were only put into place in 2021–2022, and it is unlikely that the known private commitments to increase generation capacity to be operational in2023 will be enough to meet demand.

The business sector, especially the mining industry, has already expressed interest in generating its ownelectricity. However, in order to produce the maximum 100 megawatts permitted and sell the remaining energy to the grid, at least 250 private producers are estimated to be needed. While laborunions are likely to mobilize strikes in opposition to loosening local content rules for new generation capacity, it is improbable that sufficient capacity will materialize in the upcoming 12 months.
Protracted electricity load shedding – which is anticipated to last 250 days in 2023 – rising social unrest and violence (recorded cases of intentional murder increased by +10.1% y/y in Q4 2022 to reach7,555 events) and the need to increase social spending before the 2024 election all pose risks tothe outlook.