Business conditions in South Africa continued to deteriorate for the fourth month in a row in March as the global shocks over the US banking systems crisis undermined the US dollar-denominated export commodity price index.
According to the SA Reserve Bank (SARB), the composite leading business cycle indicator in South Africa slipped by 2% in March, following a downwardly revised 0.5% fall in December 2022.
This was the fourth consecutive period of declines in business indicators, as five out of the seven available component time series decreased.
The SARB said the largest negative contributors were the decline in South Africa’s US dollar-denominated export commodity price index and a deceleration in the six-months smoothed growth rate in the real M1 money supply.
On the other hand, the positive contributors were an increase in the number of residential building plans approved and an acceleration in the composite leading business cycle indicator for South Africa’s major trading-partner countries.
The leading indicator reading for the first quarter of 2023 thus dropped by 2.4% quarter-on-quarter, showing the likelihood of a slowdown in the business cycle in the fourth quarter this year given the six-month lag between the leading indicator reading and economic activity.
The composite coincident business cycle indicator eased by 0.3% in February, due to decreases in the utilisation of production capacity in the manufacturing sector, retail and new vehicle sales as well as industrial production.
The composite lagging business cycle indicator also decreased by 1.5% in February.
The business industry has been severely affected by the ongoing energy crisis in South Africa, and the outlook appears to be worse than the rotational load shedding currently being experienced.
There have been fears that the intensified power cuts will cripple gross domestic product (GDP) growth in the first quarter of 2023.
However, economists are slightly optimistic that the economy will survive a technical recession following negative growth in the fourth quarter of 2022.
Investec chief economist Annabel Bishop said incoming monthly economic data readings were showing that GDP could have risen by around 0.5% quarter-on-quarter in the first quarter, or somewhat above.
“The worsening of load shedding in the second quarter and likely in the third quarter is expected to see economic activity worsen, and indeed the leading indicator readings show that the South African economy could see the business cycle slow down materially over the last three quarters of this year absent additional electricity supply,” Bishop said.
“South Africa is currently awaiting the conclusion of an international review on South Africa’s coal-fired power stations, to see which are able to be repaired to operate reliably at a high output, a requirement to Eskom’s debt relief programme.”
Eskom yesterday ramped up load shedding to Stage 5 as unplanned breakdowns rose to 18 177MW of generating capacity, while 2 629MW of generating capacity was out of service for planned maintenance.
The power utility experienced breakdowns of a generation unit each at the Arnot, Camden and Tutuka power stations and two generating units at the Kriel power station.
The delay in returning units to service at Arnot, Kendal, Kriel, Lethabo, Matla and Tutuka and two generating units at the Hendrina power station continue to add to the current capacity constraints.
However, Duvha, Kriel, Majuba, Medupi and Tutuka power stations were returned to service.
Eskom has warned that there was a great likelihood that it would implement an unprecedented Stage 8 load shedding during the winter months amid rising demand as generation capacity is constrained.
At least three of Kusile power station’s units are currently off-line due to a flue gas duct failure which occurred during October last year, costing Eskom at least 2 400MW of capacity, while the 900MW Unit 1 Koeberg Nuclear has also been taken off-line until mid-August.