Dark clouds gathering over South Africa

Staff Writer12 January 2023


Financial services company BNP Paribas said that South Africa will likely see weak economic growth in 2023 as the country faces global headwinds and further domestic challenges.

The company estimates 2023 GDP growth to reach 0.2% – reflecting a weaker net trade and consumption outlook.

“On top of this black growth view, we expect inflation to remain sticky for longer as the lagged effect of higher wages and rebounding service prices eat into disposable incomes, forcing more action out of the SARB (South African Reserve Bank),” said BNP Paribas.

Combined with low expected growth, the group said that stagflation risks loom large in South Africa.

Stagflation refers to a period of economic hardship characterized by stagnant economic growth, high unemployment, and rising prices (inflation).

For emerging economies such as South Africa, stagflation can be particularly damaging as it can lead to a decline in living standards and a decrease in investment, further inhibiting long-term economic growth.


This year in South Africa will be tougher economically than 2022, said BNP Paribas. Key trading partners such as Europe and the US are also expected to face headwinds.

The long-standing energy insecurity domestically is likely to intensify – halting economic progress even more.

BNP Paribas forecasts an estimated 200 days of load shedding in 2023, mostly between stages 3 and 4 – compared to last year’s ‘norm’ of stages 1 and 2.

The group estimated potential short-term growth of 0.5%, revealing an economy that is likely to stall without global tailwinds and robust commodity prices.

The financial services company added that faltering labour stock and tepid levels of productivity also help explain South Africa’s recent slump in potential GDP.

Labour and inflation

Like other countries across the globe, South Africa faces disinflation in 2023, particularly in the second half of the year, reports BNP Paribas. The group does, however, believe that disinflation will happen slowly.

“Our forecasts of the second derivative in year-on-year price changes show only a modest pace of disinflation compared with history, with the bulk of the ‘stickiness’ likely to come from core inflation.”

The group forecasts an average CPI rate of 6.0% in 2023 after 6.9% in 2022 – implying two straight years at or above the SARB’s less-desired upper 6% target bank.

The group said that until food and public transport price rises move out of the double-digit territory, inflation expectations will struggle to lower.

With high unemployment a key driver of stagflation, higher wage demands places additional pressure on the economy.

According to PNP Paribas, with many private-sector multi-year wage deals above 6.0% in 2022 and scope for some modest rises towards 4.5% in the public wage bill set for this year – one can expect unit labour costs to resume an upward trend as underlying growth slows sharply.

Previous concern

This is not the first warning of stagflation in South Africa. In May 2022, presenting at a financial stability review, the SARB noted that global stagflation is one of the major concerns for the economy.

The central bank said that continuous slow and inequitable growth, rising inflation, and extra pressure on key sectors of the financial system would all result from stagflation.

Jeff Schultz, the chief economist at BNP Paribas, said in November 2022, that the Reserve Bank would unlikely slow down on rate hikes, contributing further to a rough period of stagflation.

“Stagflationary conditions are less than ideal for the SARB, but don’t expect the central bank to blink in its pursuit of price stability,” it said.