It’s back to just ‘bad’ for South Africa
The International Monetary Fund (IMF) has revised its growth outlook for South Africa upwards very slightly, thanks to businesses proving to be more resilient to load shedding even though conditions haven’t improved much.
In the latest update to its World Economic Outlook, the IMF revised South Africa’s GDP growth expectations upwards from 0.1% in its April review to 0.3% in July.
This, the group said, is because South African businesses proved to be resilient to the persistent outages that have been dogging the economy since September 2022. This resilience revealed itself in the GDP print for the first quarter, which showed some marginal growth, despite load shedding.
An upward revision follows the IMF’s April revision down to 0.1%, where the global funder anticipated that load shedding would wipe most if not all prospects of economic growth in South Africa.
At the time, the group warned that persistent load shedding and the state’s failure to mitigate the energy crisis in time would likely stunt growth.
While South Africa has by no means crawled out of that risky environment, the country’s first quarter GDP print showed that local businesses and the industries they operate in were proving to be far hardier than analysts gave them credit for.
“In South Africa, growth is expected to decline to 0.3% in 2023, with the decline reflecting power shortages,” the IMF said.
“(However), the forecast has been revised upward by 0.2 percentage points since the April 2023 WEO, on
account of resilience in services activity in the first quarter.”
South Africa’s GDP growth in the first quarter – a still-paltry 0.4% growth q-o-q – was boosted by better-than-expected performances in the food and beverages, trade, business and personal services sectors, lifting up the declines seen in the country’s other six sectors.
Economists and analysts have noted that while load shedding continues to be the biggest drag on the economy at present, businesses and, indeed, households have largely adapted – albeit at a huge personal and operational cost.
This ‘adaptation’ has also been seen in the reduction of the economic cost of load shedding. In previous years, it was estimated that the country lost R1 billion per stage of load shedding every day it was implemented.
Current estimates from the South African Reserve Bank, however, put daily losses at around R1.2 million at stage 1 and 2, moving up to R900 million at stage 6 – the worst level of national load shedding experienced thus far.
However, this does not mean that load shedding is discounted by any means.
The IMF’s current projection of 0.3% growth for South Africa is still massively reduced from its January estimate of 1.2% and is more in line with the SARB’s latest estimate of 0.4%, announced during its latest Monetary Policy Committee meeting statement.
The Reserve Bank has been clear that load shedding and the prevailing energy crisis create sweeping downside risks to the economy and that the outages alone have wiped a full two percentage points from South Africa’s growth prospects for 2023. In other words, without load shedding, GDP growth could have been upwards of 2.4%.
Also, despite the more positive slant from the IMF, the latest estimates from South African banking groups and finance houses still present an extremely low-growth range for GDP output this year, with at least one bank still pencilling in a recession at -0.1%.
Overall, South Africa’s GDP for 2023 is still expected to be flat and the weakest out of the leading emerging market economies covered in the IMF’s outlook.
According to the IMF, emerging market growth is estimated to be around 4.0% for the year. Even Russia is expected to see economic growth of 1.5% this year, though this follows from a lower base after a 2.1% contraction in 2022.
Global growth is expected at 3.0%, the IMF noted.
“The global economy continues to gradually recover from the pandemic and Russia’s invasion of Ukraine. In the near term, the signs of progress are undeniable,” it said.
“The Covid-19 health crisis is officially over, and supply-chain disruptions have returned to pre-pandemic levels. Economic activity in the first quarter of the year proved resilient, despite the challenging environment, amid surprisingly strong labour markets.
“Energy and food prices have come down sharply from their war-induced peaks, allowing global inflation pressures to ease faster than expected. And financial instability following the March banking turmoil remains contained thanks to forceful action by the US and Swiss authorities.
“Yet many challenges still cloud the horizon, and it is too early to celebrate.”
Read: Over 800 businesses in South Africa have closed their doors since the start of 2023
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