Tough times ahead: expect interest rate hikes of 100bp in 2022 - economist

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Paula Luckhoff

53 days ago
Tough times ahead: expect interest rate hikes of 100bp in 2022 - economist Image: Gerd Altmann on Pixabay

Higher inflation and lower growth are expected to pose challenges for South Africa’s economy in 2022, says Asset Management group BNP Paribas.

"A weaker rand, alongside less transitory global inflation dynamics mean that the risks to our 4.7% CPI estimates next year are to the upside."

"A fourth Covid-19 wave, new virus variants and the likelihood of more electricity supply cuts mean the risks to our 2022 1.8% GDP estimate are to the downside."

Last night, US Federal Reserve Chair Jerome Powell's remarks about high inflation being expected to last into mid-2022 pointed the way for the global economy.

Bruce Whitfield interviews Jeff Schultz, Chief Economist at BNP Paribas South Africa

Based on whether global inflation was going to prove transitory or something more permanent, the jury was out on that for most of this year but Powell's comments suggest that we're becoming a lot more concerned about this not being a transitory inflation pressure but rather something that is a fair bit more long-lasting...

Jeff Schultz, Senior Economist - BNP Paribas SA

... not just because of the supply disruption that will probably ease globally by the middle part of next year, but also that demand is now starting to catch up with supply.

Jeff Schultz, Senior Economist - BNP Paribas SA

It's the combination of these two factors, he says, that points to inflation globally likely to prove more problematic in 2022 than anticipated.

Whitfield outlines the major domestic factors South Africa also has to contend with.

Amongst those domestic issues is the fact that we have a currency that is vulnerable to the whims of the global economy and also a growth rate that is far too slow, and an economy that is not transforming fast enough to get real growth going.

Bruce Whitfield, The Money Show host

Less growth and more inflation certainly doesn't make life easier for central banks or policy makers and that's what we're seeing in South Africa... We probably are going to see interest hikes continue going into next year.

Jeff Schultz, Senior Economist - BNP Paribas SA

Schultz says the structural constraints in our economy have come to a head.

He highlights factors like electricity supply and Tuesday's catastrophic unemployment figures.

RELATED: New unemployment rate record (34.9%) but 'we haven't seen the worst yet'

We need to start with electricity supply, but certainly we need to look at the labour market; we need to look at our ports, our rail and telecommunications infrastructure... and as a central bank governor once said, structural economic policy requires significant amounts of political will... to make the difficult decisions to really get this economy going again.

Jeff Schultz, Senior Economist - BNP Paribas SA

Listen to the conversation on The Money Show:

This article first appeared on CapeTalk : Tough times ahead: expect interest rate hikes of 100bp in 2022 - economist

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