The R-word hangs heavy over South Africa

 ·23 Mar 2023

The move by the International Monetary Fund (IMF) to cut South Africa’s growth prospects for 2023 to just 0.1% brings the country ever closer to recession.

The global lender is just the latest in a string of finance groups, including South Africa’s biggest banks, to sound the alarm on the country’s paltry growth prospects. Along with Nedbank, it has the lowest forecast at just 0.1% for 2023.

According to economists from the Bureau for Economic Research (BER), while none of the major banks have yet to pencil in negative growth for the full year, it isn’t easy to find anyone looking beyond the 0.0%-0.5% range.

Old Mutual Investments remains the most optimistic at this point, with chief economist Johann Els still pencilling in 2% growth for the year.

Beyond that, however, National Treasury is next in line with the 2023 budget pointing to a rosy 0.9% GDP growth this year.

The South African Reserve Bank, meanwhile, was the first to pull the trigger on the bleaker outlook, cutting its forecast to 0.3% at its January meeting.

  • Old Mutual Investements: +2.0%
  • Absa: “Below 1.0%”
  • National Treasury: +0.9%
  • FNB: +0.4%
  • SARB: +0.3%
  • Nedbank: +0.1%
  • IMF: +0.1%

The SARB’s Monetary Policy Committee will be meeting next week, and all eyes will be on its media address on Thursday (30 March) for the next forecast from the central bank.

As widely reported, the main culprit for South Africa’s recession anxiety is load shedding. Near-permanent blackouts for more than six months have torn through the South African economy, placing immense pressure on businesses and households alike.

The Reserve Bank’s 0.3% forecast in January was based on an expectation of 200 days of blackouts in 2023. However, this projection has already increased to 250 days, given the dire state of Eskom and its power stations.

Despite assurances from the new minister of electricity, Kgosientsho Ramokgopa, that the government is confident that load shedding will be brought under control, there is no escaping the reality that the grid remains constrained, and high-demand winter months are fast approaching.

Technical recession

While a full-year recession is in the mix, South Africa is already sitting on the cusp of entering a technical recession – which is two consecutive quarters of economic decline.

The fourth quarter of 2022 stunned with a decline of 1.3%, which came as a shock to the market. While the consensus among analysts was that the quarter would show negative growth, the final figure was three times larger than expected (-0.4%).

This set the stage for a really bad first quarter of 2023. The final quarter of 2022 was the start of South Africa’s worst period of load shedding on record, with only two days (9 and 30 October) being free of rolling blackouts.

The first quarter of 2023 has so far been much worse, with only one day free of load shedding (21 March) and the rest of the days experiencing load shedding at far higher stages than in 2022.

While economists at the BER noted some surprising growth between December 2022 and January 2023 – sparking some slight hope that the country could show some economic growth in Q1 – more recent data from industry surveys show that the economy is still very much taking a beating from load shedding.

Nedbank’s economists are not optimistic, forecasting a Q1 decline of 0.5%, saying that, in all likelihood, the country is already in a technical recession.


According to the IMF, there is a way to turn things around for South Africa. Resolving the energy crisis is priority number one, as this could spur economic activity and job creation – a noticeable boost for the country’s growth prospects.

Reforms aimed at restoring energy security that attracts private-sector participation in the electricity market and addresses Eskom’s operational and financial challenges may help to bolster output growth and create jobs, the IMF said.

Though very late to the party, the national government is already implementing its plan to resolve the energy crisis. While this is positive, it may be too late for 2023, as results are only expected to be felt 12 to 18 months from now (if everything goes well).

In the meantime, there is also some hope in the burgeoning renewables sector, where businesses and households are increasing spending on private generation to resolve the power crisis themselves.

While this often comes at the expense of other services (as noted by the BER), money is still being spent. Economic activity is there.

This was also reflected in the bleak Q4 data, where fixed investment – into buildings, machinery, and equipment – came in higher than expected, while household expenditure also grew.

Listed companies have already solidified plans to expand their own generation capacities and investment into load shedding mitigation measures. At the same time, households are expected to take advantage of tax breaks to build out rooftop solar.

However, whether these measures are enough to boost overall economic growth remains to be seen.

Nedbank economists warned that growth in consumer spending is expected to slow due to the squeeze on household incomes emanating from sticky inflation and higher interest rates, which could add to the pressure.

Given the most recent inflation figures showing prices ticking up in February – as well the as the US Fed’s move to hike rates this week despite the banking crisis – has all but guaranteed another internet rate hike coming from the MPC next week.

This will add debt pressure to households, which may just be another big blow to any hopes of South Africa escaping a technical recession in Q1 and a full-year recession in 2023.

Read: IMF slashes South Africa’s GDP growth forecast for 2023

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