Even in the dark, South Africa continues to surprise

 ·17 Mar 2023

Early economic data for January gives a glimmer of hope that South Africa may yet avoid a technical recession, say economists at the Bureau for Economic Research (BER).

The country had a busy week for industry data, with January’s mining, manufacturing, retail and wholesale trade figures being published this week.

According to the BER, while the year-on-year (y-o-y)declines across most sectors were as expected – given the severity of load shedding at the start of 2023 versus 2022 – there has been month-on-month growth from some industries, which came as a “most welcome” surprise.

“While early days, this does firm up our view that the economy may avoid a technical recession following last quarter’s decline,” the BER said.

This is notable, as the positive month-on-month data follows shocking Q4 2022 GDP figures published last week, which reflected a 1.3% contraction of the economy over the period – three times worse than the market expected.

The quarter’s decline was underpinned by non-stop load shedding, which hit for all but two days during the last three months of the year, tearing through the economy.

This sounded the alarm for first quarter 2023 GDP forecasts, as the country has experienced load shedding every single day of the year so far – 76 days and counting – often at much higher stages than in Q4.

Because of this, y-o-y data is showing the expected declines in production, with some faring much worse than others. However, the month-on-month data is far more hopeful.

According to Stats SA, mining production decreased by 1.9% y-o-y in January, following a 3.6% drop in the previous month. However, on a seasonally adjusted basis, mining production increased by 4.4% m-o-m in January on the back of a 23.7% surge in iron ore output.

Despite the monthly production increase, recent price declines meant that mineral sales at current prices declined by 0.6% m-o-m in January. On an annual basis, though, sales were still up by 6.8%.

In manufacturing, production declined by 3.7% y-o-y in January. Encouragingly, however, the Absa PMI for January suggested a surprising uptick in manufacturing activity.

“We can now confirm that this translated to some actual production growth. Manufacturing production rose by 1.1% m-o-m, which exceeded expectations and followed a 0.5% increase in the previous month,” the BER said.

Moving to the internal trade data, wholesale trade sales at constant prices decreased by 3.6% y-o-y in January. This was the fourth consecutive annual decline.

Again, though, the month-on-month picture is more positive as wholesale trade sales rose by 0.4% m-o-m in January.

And finally, while retail trade sales at constant prices edged down by 0.8% y-o-y in January, on a monthly basis, real retail trade sales rose by 1.5% in January after a 0.5% decline in December.

Not out of the woods yet

While the positive month-on-month data stirs some hope that South Africa’s economy can possibly avoid a technical recession, the numbers are not a cause for celebration.

By all accounts, GDP numbers for the first quarter of the year will be an extremely close call – and there are still two months of data (February and March) to factor in.

The slight hope also does not discount the devastating impact of load shedding on the economy. If the country sees growth in the face of outages that have seen households and businesses thrust into the dark for up to 12 hours a day, it will be a surprise.

Even if South Africa avoids a technical recession in Q1, the writing is on the wall.

Every major bank and finance group that has published its results and forecasts for the year have noted the impact of load shedding on the economy, cutting growth projections severely for 2023.

While none have pencilled in an outright recession, all projections are sub-1% – the lowest being a mere 0.1%.

FNB cut its growth forecast for 2023 to 0.4%. Absa said growth would be below 1%, while Nedbank took a harsher stance, putting the country’s growth expectations on the cusp of recession at just 0.1%.

This dancing on the edge of recession has been echoed by the South African Reserve Bank, which cut its growth forecast for the country to just 0.3% at its Monetary Policy Committee (MPC) meeting in January.

At the time, the bank said that its 0.3% prediction was based on South Africa experiencing 200 days of load shedding in 2023. This week, deputy Reserve Bank governor Rashad Cassim revealed that the country is now expected to experience 250 days of outages – making the 0.3% look shaky at best.

“We know electricity shortages have intensified; we expect to have 250 days of load-shedding this year, from 157 days last year and 48 days in 2021,” he said.

Read: South Africa has reached a new low – and it could get worse: Reserve Bank

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