While South Africa may have been able to avoid a technical recession in the first quarter of the year, Eskom’s bleak outlook for the coming winter means the possibility of a full-year recession cannot be ignored.<\/p>\n
This is according to economists from the Bureau for Economic Research (BER), who say that a clearer picture of the country’s full-year GDP outlook will become apparent in the coming weeks as more Q1 data is published – but things aren’t looking great.<\/p>\n
In a market note on Monday (22 May), the BER said its current projection for full-year GDP growth in 2023 is sitting at 0.2%, in line with estimates from the South African Reserve Bank.<\/p>\n
In general, South Africa’s growth prospects for the year are incredibly low across almost all analytics and finance groups. They range from a paltry 0.1% from the International Monetary Fund to a still pedestrian – and wildly outdated – 0.9% from National Treasury in its February budget.<\/p>\n
The BER said its 0.2% projection is based on its earlier load-shedding outlook report from April. Like the SARB, the BER and other market analysts peg South Africa’s bleak growth outlook on severe levels of load shedding.<\/p>\n
The SARB anticipates 250 days of load shedding this year, through which two percentage points of growth will be wiped off the map.<\/p>\n
However, on Thursday (18 May), power utility Eskom provided a system update heading into winter, in which it warned that load shedding is likely to escalate in the coming months<\/strong>, even pushing as high as stage 8 if specific mitigation efforts prove ineffective.<\/p>\n This means that the already low GDP projections could prove to be even worse – possibly putting South Africa into a full-year recession.<\/p>\n “With electricity demand set to rise as temperatures drop and with more than 3,000MW of generating capacity unavailable due to long-term outages through the winter months, Eskom\u2019s baseline outlook is for prolonged periods of stage 3 to 5 load-shedding through August,” the BER said.<\/p>\n To mitigate against the projected demand-supply imbalance, as per normal, Eskom plans to cut back on planned maintenance through the winter months. This will be limited to a maximum of 3,000MW, down from more than 5,000MW.<\/p>\n In addition, the utility has secured R30 billion for diesel expenses in the 2023\/24 (April 2023 to March 2024) financial year. This will enable increased utilisation of Eskom\u2019s open cycle gas turbines (OCGTs) during the next several months.<\/p>\n Eskom will also embark on a renewed demand-side management drive to create awareness of measures to reduce power consumption.<\/p>\n “Importantly, if these interventions are insufficient and\/or in a scenario of greater-than-expected unplanned outages\/industrial action at key generating units, Eskom envisages being forced to implement load-shedding of up to stage 8. This would imply a further four hours of power rationing on top of stage 6, i.e., 16 hours of load-shedding in a 32-hour cycle,” the BER said.<\/p>\n Recession<\/strong><\/p>\n Businesses have accepted that stage 8 load shedding is all but guaranteed, and energy experts have warned for months that stage 8 outages would be certain – perhaps even moving beyond those levels.<\/p>\n According to the BER, these elevated levels of load shedding are beyond what it has modelled so far – thus, its 0.2% estimate for GDP growth could ultimately prove to be optimistic.<\/p>\n “It has to be said that possible periods of stage 8 power rationing were not part of our baseline forecast in April. Still, at that stage, we already pencilled in real GDP growth of a mere 0.2% for 2023, and flagged more-intense-than-assumed load-shedding as a risk in our forecast report.<\/p>\n Because of this, the group said that the risks outlined by Eskom raise the possibility of real GDP contractions in the winter quarters<\/strong>, i.e., 2023Q2 and 2023Q3, as well as calendar 2023. <\/strong><\/p>\n “For now, we are holding off from further downscaling the GDP forecast until the release of the 2023Q1 GDP figures on 6 June and the 2023Q2 BER business surveys shortly after,” it said.<\/p>\n
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