Economic Growth and other Indicators - March 2021- South Africa

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EXECUTIVE SUMMARY-

• Real Gross Domestic Product (GDP) and Growth Rates South Africa’s GDP increased at an annualised rate of 6,3% in the fourth quarter (October to December) of 2020 when compared to the previous quarter (July to September) of 2020, largely as a result of further easing of corona virus (COVID-19) lockdown restrictions.

The agriculture, forestry and fishing industry increased at a rate of 5,9%, and contributed 0,2 of a percentage point. It is noteworthy that in 2020, the agricultural sector performed well in all its sub-sector of field crops, horticulture and livestock.

• Crude Oil and the Exchange Rate Comparing February 2020 to February 2021, y-o-y, the price of crude oil increased by 13% while the exchange rate depreciated by 1.8%.

This increase in crude oil prices shows returning price trend to pre-pandemic levels. Although, the oil market remains fragile in the early part of 2021 as measures to contain the spread of Covid-19, with its more contagious variants, weigh heavily on the near-term recovery in global oil demand. In February 2021, the price of crude oil and the exchange rate reached levels of US$62.22/barrel and R14.76/$, respectively.

• Average Prime Interest Rate The prime interest rate is currently 24.3% lower than during November 2014. The prime interest rate reached a peak of 10.5% during the period March 2016 to June 2017. The prime interest rate remains at 7.0% in November 2020.

The South African Reserve Bank (SARB) uses interest rates to influence the level of inflation. To protect the value of the rand, the SARB uses inflation targeting, which aims to maintain consumer price inflation between 3% and 6%. According to the Monetary Policy Committee (MPC) of the SARB, overall risks to the domestic growth outlook are assessed to be balanced. Global growth, vaccine distribution, a low cost of capital and high commodity prices are supportive of growth. However, new waves of the Covid-19 virus are likely to periodically weigh on economic activity both globally and locally. Besides constraints to the domestic supply of energy, weak investment, and uncertainty surrounding the vaccine rollout remain serious downside risks to domestic growth. The slow economic recovery will help keep inflation below the midpoint of the target range for this year and next. Unless the assumed risks materialise, inflation is expected to be well contained in 2021, before rising to around the midpoint in 2022 and 2023. Headline consumer price inflation averaged 3.3% in 2020, in line with the Bank’s expectation, and is the lowest rate since 2004.

The prime interest rate is utilised as a reference or benchmark rate for loan pricing. The prime rate is the lending rate at which a bank will provide credit facilities to their most credit worthy clients. Figure 4 illustrates the average monthly prime interest rate for the period of March 2015 to March 2021. The prime interest rate is currently 24.3% lower than during March 2015. The prime interest rate reached a peak of 10.5% during the period March 2016 to June 2017. There has been a fluctuation of prime interest rates over the depicted period in efforts to manage the inflation. Due to an unchanged Repo rate, the prime interest rate remains at 7.0% in March 2021 since July 2020.

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