South Africa dodged the ‘big R’ – but it’s not enough

South Africa is not in recession, says financial services company PwC.
While business leaders are (justifiably) downbeat about the country’s economic growth outlook and fear technical recession – two consecutive quarters of GDP decline – this has not materialised, the group said.
In its latest Economic Outlook report, PwC cited its Global CEO Survey that found that six out of ten CEOs in South Africa expected a decline in economic growth this year, both locally and globally.
The economy, however, in the first quarter of 2023 was 0.2% bigger, year on year.
The most recent GDP data from StatsSA in early June showed that the local economy grew by 0.4% quarter-on-quarter during the first quarter of this year, avoiding technical recession following a 1.1% quarter-on-quarter decline in the quarter before.
However, longer-term GDP numbers are still at risk. Other economists and finance groups have warned that the economy could still slip into the negatives on a full-year basis.
Even PwC’s own scenario modelling has flagged this possibility, with the group’s downside scenario seeing overall GDP declining by 0.5%.

While any economic growth is positive, PwC noted that it is far from being in a healthy position.
Specifically, 0.2% year-on-year growth is still far away from the numbers needed to support job creation and curb unemployment in the country, while salaries in real terms are in decline.
Over the same period (Q1 2023), South Africa’s unemployment rate increased by 0.2 percentage points, while consumer price inflation remained – and remains – outside the central bank’s target range of between 3% and 6%.
According to PwC, this signifies stagflation, which will inevitably detract from investor and business sentiment.
Similar to depressed CEO outlooks, the RMB/BER Business Confidence Index dropped to 27 in the second quarter of 2023 – a similar pattern to that seen during the pandemic.
PwC added that the Whole Economy S&P Global South Africa PMI for May 2023 declined to its lowest reading in almost two years and recorded a decline in the health of the private sector for the third successive month.
The company said the S&P reading of 47.9 in May (down from 49.6 in April) also reflects a decline in private sector activity during the month. S&P Global pointed to key issues like load-shedding and production cost inflation as the primary downward drivers.
The Bureau for Economic Research (BER) noted this month that the current challenging business environment is not conducive to growth in non-energy capital expenditure or meaningful employment creation. This, in turn, hurts the country’s long-term productivity
The graph below shows the depressed sentiment of CEOs in South Africa:
The possible bounce back
PwC said the economic outlook for 2024 looks more positive – especially if private energy investment results in less frequent load shedding.
“The South African Reserve Bank (SARB) said in May it expected 280 days of load-shedding in 2023 and warned that power cuts to reduce real GDP growth this year by two percentage points. Our baseline view is for real GDP growth of only 0.3% this year.”
“The outlook for 2024 is somewhat better, based on the premise that South Africa will this year see a turning point (peak) in the extent of load-shedding,” PwC said.
There has been major private investment seen and planned in renewable or alternative power supplies. Operation Vulindela, for example, is tracking a pipeline of 10,000MW in private-sector energy generation projects.
“The positive impact that this will have on the power supply in the country and on individual business operations makes for a more positive economic growth outlook for 2024 and beyond. We expect the economy to grow by 0.9% next year or as high as 1.3% under an upside scenario,” said PwC.
Read: Red flags for food security and pricing in South Africa: PwC