The COVID-19 pandemic has caused millions of workers to lose their jobs, while the number of discouraged workers increased. Investment has been on a downward path already before the crisis, marred by policy uncertainty, and lack of essential infrastructure. Regulatory restrictions in many areas are a threat to the recovery. Stronger growth is needed to place the government debt trajectory on a sustainable path and to finance large unmet needs in education, health and social spending.
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2021 Structural Reform Priorities
An early and long lockdown to tackle the virus outbreak led to a significant decrease in economic activity in the first half of 2020. A substantial rebound is expected in the second half of the year, driven by high demand and favourable prices for South Africa’s exports. Near-term growth will nevertheless be modest owing to subdued domestic demand. Household consumption will remain low as unemployment will remain high. Private investment will be restrained by a lack of confidence. GDP is set to contract by 8.1% in 2020 before increasing by 3.1% in 2021 and 2.5% in 2022.
Inflation will remain below the Reserve Bank’s target, allowing monetary authorities to reduce policy rates further. In the event of another large virus outbreak in the near term, fiscal policy has reduced space to react. Fiscal consolidation is needed when the pandemic subsides to limit public debt growth. Recent steps in launching the auction of telecom spectrum and procuring renewable energy from independent power producers are sending positive signals to business leaders and could lift confidence if successfully concluded. Advancing structural reforms in network sectors, restructuring state-owned enterprises and boosting infrastructure investment could restore growth momentum.