• GDP growth declined from 1.5% in 2014 to 1.3% in 2015, and is expected to weaken further to 0.7% in 2016. Electricity shortages, low commodity prices and low consumer and business confidence continue to restrain the growth of economic activity.
• Slow progress in delivering economic and social services in townships and rural areas remains one of the major challenges to government.
• South African cities are dynamic poles of socio-economic activity facing high inequality and environmental risks.

Economic performance remained challenging in 2015, with GDP growth of only 1.3%. This sluggish growth was primarily due to depressed commodity demand from China, low global commodity prices, low investment, erratic capital flows and low consumer and business confidence. Real GDP growth is forecast to continue its downward trend in 2016, with an estimated rate of just 0.7%. The public sector wage bill has been expanding while economic growth has been very slow. Persistent shortages in electricity have had a knock-on effect on the economy, while the worst drought in two decades continues to devastate agriculture whose real proportion of GDP has been reduced by 16.2%.

The Rand (ZAR) depreciated by more than 30% between December 2014 and December 2015. Consumer price index (CPI) inflation remained in 2015 within the target range of 3% to 6% yearon-year but, owing to the continued currency depreciation and the ongoing drought, pressures on the CPI will persist in 2016. Limited electricity supply has also weighed down manufacturing, mining and service-sector activity.

National government revenue increased by 8.4% to reach ZAR 955 billion (24.8% of GDP) boosted by higher personal income tax, taxes on property and value added taxes, while national-government expenditure increased by 8% to reach ZAR 1.13 trillion (29.4% of GDP). Monetary policy has been tightened with the repurchase rate reaching 6.75% to respond to the rising inflation risk. Despite the increased rate, demand for credit by the private sector rose by 8.6% in August 2015 compared to 8% in June.

Unemployment remains stubbornly high at 25.3%, and is particularly pervasive among the youth, at 52.5% in 2015. High unemployment, especially among black South Africans, is the main cause of the widening income inequality, as shown by a Gini Coefficient of 0.69, which is one of the highest in the world. To resolve these challenges, the government unveiled a nine-point plan to kick-start economic growth, increase investment and create jobs.

Socio-economic inequalities continue to threaten long-term stability. The legacies of apartheid, poor service delivery and widespread poverty have characterised socio-political discourse throughout 2015. Protests against service delivery were widespread in various parts of the country.

Source: African Economic Outlook