Glimmer of hope for South Africa – but it may be short-lived

 ·24 Apr 2023

Economic data from South Africa’s industrial sector is giving a glimmer of hope that the country will avoid a technical recession in the first quarter of the year, say economists at the Bureau for Economic Research (BER).

However, the economy is far from heading in a more positive direction, with clouds already gathering for second quarter data, it said.

Commenting on the latest economic data from the country’s trade and industrial sectors, the BER said that – while obviously under pressure – results have been more positive than anticipated.

“While struggling relative to 2022, the overall trade sector is set to perform better in 2023Q1 compared to 2022Q4. Put differently, the sector is expected to make a positive contribution to Q1 real GDP,” it said.

“Following the January and February data, industrial output – excluding electricity generation – now also looks to have eked out a quarterly increase in Q1.”

Taking all available data together, the BER said that this firms up its expectation that the South African economy may avoid a technical recession in 2023Q1.

This view is similar to that of economists at Nedbank, forecasting flat (0.0%) GDP growth for the year’s first quarter. While this is not a positive move, it’s also not a negative one. However, risks are squarely on the downside, and threaten to push South Africa over the edge.

The BER also noted that the forecast for full-year growth in 2023 is bleak, and the sustained stark deterioration in the outlook for Eskom load-shedding has driven a consistent downgrade to real GDP growth forecasts for the year.

In fact, the load-shedding outlook has deteriorated to the point that the BER has marginally lowered its growth expectations to 0.2% (from 0.3% previously) in line with the South African Reserve Bank.

Growth prospects for South Africa in 2023 now range from 0.1% to 0.9%, with most expectations on the lower-end of the range. The IMF has the lest optimistic outlook at 0.1%, while National Treasury’s expectation of 0.9% is largely out of date, having been pencilled in at the time of the Budget in February.

Load shedding to blame

According to Nedbank economist Johannes Khosa, for the full year, Nedbank is also forecasting real GDP growth in South Africa of around 0.2%.

Unfortunately, this forecast faces significant downside risks, especially given the worsening electricity crisis and significant global headwinds.

He is also less optimistic about South Africa avoiding a technical recession, saying the risks remaina high.

“Our base view is that the economy probably recorded no growth in the first quarter and that the economy will remain weak during the remainder of the year. Consumers are expected to be more cautious as elevated inflation and higher interest rates weigh on incomes, and concerns over job security erode confidence,” he said.

The main cause of all the turmoil is the persistent load shedding, which is eating away at industries, businesses and households alike. This is particularly risky with winter approaching, where load shedding is expected to be ramped up.

“Persistent load shedding remained a major issue, disrupting operations in most industries and adding to operational costs as companies resorted to other power sources, such as diesel generators. The frustrations caused by power shortages continued to weigh on confidence,” he said.

“Electricity shortages will remain the main drag on the economy. Load-shedding will likely worsen in the second and third quarters as demand for heating increases over the winter while the electricity supply remains severely constrained. It is becoming clear that the electricity crisis will not be resolved quickly,” the economist said.


Read: Expect load shedding to stick around for another five years: economist

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