Alexander Forbes on the key drivers that will shape SA’s economy in 2021

South Africa is gearing up for a pivotal moment as Finance Minister Tito Mboweni prepares to deliver the national budget this month. The expectations are tempered as the country faces the challenge of fiscal consolidation in the midst of a deep recession. Isaah Mhlanga, Chief Economist at Alexander Forbes, shared insights on the key drivers that will shape South Africa's economy in 2021 and beyond in an interview with CNBC Africa. Mhlanga emphasized the need for sustainable fiscal policies to navigate the economic recovery. He highlighted the impact of the lockdowns on job losses and called for expanded income support to assist those affected. However, he cautioned that achieving fiscal consolidation targets, especially in the absence of significant structural reforms, could be challenging. One of the critical factors to watch is the vaccine rollout and its implications for economic growth. Mhlanga indicated that reaching herd immunity in South Africa may only be feasible by the second half of 2022. He warned of potential disruptions to the economy from waves of the virus until a significant portion of the population is vaccinated. Mhlanga projected a modest economic growth of 3.5% for South Africa in 2021, driven primarily by base effects. He anticipated a slight moderation to 2.5% growth in 2022, with improvements expected in fixed investments from the private sector. The economist also emphasized the importance of monitoring global trends, such as fiscal stimulus in the US and Europe, which could boost South Africa's commodity exports and provide favorable financing conditions. Fiscal consolidation emerged as a key theme in Mhlanga's analysis, with a focus on expenditure cuts rather than tax increases. He underscored the significance of economic growth in reducing the country's debt-to-GDP ratio over the long term. While acknowledging the challenges of implementing deep structural reforms, Mhlanga highlighted the importance of political will and consistency in policy decisions. In terms of regional trade opportunities, Mhlanga noted that the African Continental Free Trade Area could benefit South Africa in the longer term. However, he cautioned that obstacles related to healthcare and border restrictions might hinder immediate gains from increased trade within the continent. As South Africa navigates a complex economic landscape, the coming budget announcement and ongoing policy decisions will play a crucial role in determining the country's path to recovery. With a combination of domestic reforms, global trends, and regional partnerships, the outlook for South Africa's economy in 2021 remains cautiously optimistic.