Local economist Sanele Sibiya says Emaswati involved in exporting goods and services to South Africa should expect diminished business activity. He, however, says it’s not all gloom and doom as Q3 and Q4 could represent improvements in economic conditions as Central Banks begin to respond to slowing economic activity.
By Avite Mbabazi
The South African Gross Domestic Product (GDP) has shrunk by 0.7% in the 2nd quarter of 2022.
This came as a result of the worst flooding in three decades and the energy crisis the country is currently facing. South African business publication Moneyweb states that South Africa’s economic growth is now smaller than it was pre-pandemic.
The deterioration in South Africa’s GDP can also be attributed to the efforts of the South African Reserve Bank (SARB), like other global Central Banks, to curb inflation that has been on the rise since the start of the Russia-Ukraine conflict. These efforts to curb inflation which included decreasing interest rates have put global economies into a slump as the higher cost of borrowing money has led to a significant decrease in spending by individuals and businesses.
According to Economics Lecturer at the University of Eswatini, (UNESWA) Sanele Sibiya, if the GDP shrink seen in South Africa is sustained, it is most likely that there will be a decrease in interest rates leading to what he calls a ‘growth story in the 3rd and 4th quarter of this financial year.
On the downside, Sibiya says Emaswati involved in exporting goods and services to South Africa should expect diminished business activity, and ultimately layoffs as South Africans are likely to reduce their demand for foreign goods.
However, it is not all doom and gloom since Q3 and Q4 could represent improvements in economic conditions as Central Banks begin to respond to slowing economic activity. Speaking about the ‘growth story’ likely to emerge in the 3rd and 4th quarters, Sibaya remarked that “until now, the focus has been on reducing inflation, but in the 3rd quarter we are likely to see a growth story as we move away from fighting inflation to increasing economic activity.”
Moreover, he observes that the shift to economic growth will be helped by the agreements signed between Russia and Ukraine to allow ships carrying grain to leave Ukrainian ports.