South Africa has more than load shedding to worry about: economists

Weeks of load shedding and the flooding in KwaZulu Natal are expected to be the key drivers behind a decline in economic growth for the second quarter of this year, say economists at the Bureau for Economic Research (BER) – however, the country’s worries extend beyond our own borders.

Stats SA will publish the latest quarterly GDP data on Tuesday (6 September), with the BER anticipating a contraction of around 0.5%.

“The high-frequency figures already available for the quarter showed the adverse impact of intensified levels of load-shedding, the prolonged strike in the gold mining sector and, of course, the severe KZN floods,” the BER said.

“Indeed, mining and manufacturing production, as well as retail and wholesale outlays declined notably in Q2. However, some of the other available data suggests some support from the services components of GDP.”

A decline for the second quarter based on local factors was expected, given the realities of the country – however, the outlook for the third quarter is more worrying.

“With intense load-shedding still prevalent in the early part of the month (August) and the Absa PMI remaining poor in July, actual factory output likely remained under pressure. There is also some crucial confidence data scheduled for release this week, with the RMB/BER business confidence and FNB/BER consumer confidence numbers in focus,” the BER said.

Globally, however, a key focus is the outcome of the European Central Bank (ECB) monetary policy meeting on Thursday.

“After last week’s release of above-consensus and record-high CPI inflation data, coupled with recent hawkish commentary from prominent ECB board members, several analysts revised their interest rate forecasts higher. A growing number of forecasters now expect an aggressive 75bps policy rate hike by the ECB this week,” it said.

This comes with other major global issues affecting key markets South Africa deals with.

Europe and the UK are under pressure from a worsening energy crunch, with reports suggesting that German industrial groups are cutting back production amid surging gas prices.

“European gas prices were down sharply on the week. However, the situation is likely to worsen again over the short term after Russian energy heavyweight Gazprom indefinitely extended the shutdown of gas flows through the key Nord Stream 1 pipeline to Germany on Friday evening. The move came hours after the G7 countries agreed to impose a price cap on Russian oil.

“The aim of this move is to curtail Russian energy export revenue, which is financing the ongoing war in Ukraine,” the BER said.

From a local perspective, the only real positive from the downshift in sentiment was a sharp week-on-week decline in the Brent crude oil price to well below the key $100 a barrel mark.

“However, given recent extreme energy price volatility, it remains to be seen whether the lower oil price will be sustained,” the BER said.

“Along with decades-high inflation and rising interest rates in developed countries, as well as a mixed recent performance from key SA export commodity prices, weaker global activity places downside risk on SA real GDP growth in the latter stages of 2022 and 2023,” it said.

Investec chief economist Annabel Bishop said that a global recession is increasingly seen as likely in 2023, driven by higher interest rates and the dulling effect of high inflation on economic activity – particularly higher energy prices – while the Russian/Ukraine war drags on and real disposable incomes shrink.

“Warnings that Europe is already in recession are also emerging, with Germany, the region’s largest economy, seeing contractions in manufacturing production and private-sector activity overall,” she said.

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