How quickly our economic outlook changed

A look at the forecasts of a range of economic figures show how fast South Africa’s outlook for 2020 deteriorated. Within months, economists have cut their predictions dramatically.

The publication by the Bureau for Economic Research at the University of Stellenbosch of the very bleak forecasts by a large panel of economists at the end of August – in this case the rather large panel of nearly 40 economists who entered the Beeld/Sake24 Economist of the Year competition – prompted a closer look at their forecasts at the beginning of the year. Every figure took a turn for the worse, and quickly.

The economists’ first forecasts, published in February, still predicted that the economy would grow by 0.6% (the average number) in 2020. By August, the real GDP growth forecast was cut sharply, to an average of -8.1%.

Economic forecasts submitted in February 2020 and August 2020

Source: Bureau for Economic Research

Every one of the most recent figures tells a story of a weaker economy, even the forecast for lower inflation and a lower deficit on the current account. Inflation is expected to be much lower at 3.3% compared to earlier forecasts of 4.5% because of a collapse in demand for goods and services.

Lower demand impacts on the current account through the value of imports, because SA imports just about everything except for food and wine.

Our weaker economic outlook also led economists to reconsider the exchange rate at the end of the year, as well as the outlook for the prime overdraft rate as the South African Reserve Bank cut interest rates to try to stimulate the economy.

The oil price is expected to be much lower at the end of the year (the competition calls for the average for the last quarter) due to economic problems in the rest of the world. The gold price is expected to be much higher than expected just six months earlier, due to global uncertainty.

Adjusting economic forecasts as time goes by is not unusual. Downward adjustments seem to have become the norm in SA over the last few years – as if economists are rooting for team SA to do well at the start of each year and then having to adjust their expectations to reality a few months into the game.

Digging out the economists’ forecasts at the beginning of 2019 and the actual figures at year-end illustrates how the real performance compared to early forecasts for the year.

Forecasts submitted in February 2019 compared to actual figures

Source: Bureau for Economic Research/SA Reserve Bank Quarterly Bulletin March 2020

GDP was much lower than originally expected. One will remember that most institutions, including the SA Reserve Bank, commercial banks and international bodies like the International Monetary Fund and World Bank, have downgraded their economic growth forecasts several times during 2019.

The same can be said about inflation, which was also lower at the end of the year than expected at the beginning of 2019. This lower-than-expected inflation number was also the result of lower economic activity.

Which raises the very important question: How good are the latest forecasts? The figures look already bad. Will the actual figures be even worse?

The latest forecasts submitted by the entrants to the Economist of the Year competition predict quite good economic growth of 3.2% for 2021. But this is off the very low base of the weak 2020 levels, making the number actually rather pathetic.