Eskom’s load shedding and muted demand pushes SA economy over the edge
The economy officially slid into a second technical recession in as many years following the second consecutive quarter of negative growth between October and December 2019.
Citadel chief economist and advisory partner Maarten Ackerman said the economic outlook was dismal and a downgrade appeared unavoidable.
“This means that our headwinds will definitely rise in the first quarter of 2020, so the recessionary environment will probably continue into 2020,” Ackerman said. “A credit rating downgrade appears unavoidable.”
Statistics South Africa revealed that the country’s gross domestic product (GDP) declined a shocking 1.4 percent in the quarter following the 3.2 percent fall in the first quarter and a revised 0.8 percent contraction in the third quarter following Eskom’s Stage 6 load shedding in December.
StatsSA said the economy fell 0.5 percent year on year in the quarter.
Growth for the full year also surprised to the downside at 0.2 percent, the lowest since the 2008 global financial crisis, following a 0.8 percent growth in 2018.
Economists said the expected 0.9 percent growth for 2020 would almost certainly turn out to have been too optimistic, due to the contraction.
FNB’s Matlhodi Matsei said the economy would falter further in the first quarter on the spread of the deadly coronavirus (Covid-19) in and outside of China, the country’s largest trading partner.
Matsei said FNB now forecast growth of 0.6 percent this year.
“Severely low confidence levels, load shedding and the disruptions to supply chains and tourism from the global spread of Covid-19 cloud South Africa’s growth outlook,” Matsei said.
“Nevertheless, the low inflation (and by implication, interest rate) environment, combined with the tax relief from the 2020 February Budget speech, could provide auxiliary support to household spending.”
Ratings agencies have consistently warned that Eskom posed the single biggest risk to economic growth.
Moody’s Investors Service is the only major agency to have South Africa’s credit rating above junk grade. It will announce its decision on the country’s credit rating at the end of this month.
Econometrix director and chief economist Dr Azar Jammine said there was so much uncertainty regarding the government’s policies that no one wanted to risk investing in the economy.
Jammine said the investment summits that President Cyril Ramaphosa has held to kickstart the economy have failed.
“We are looking at a future where there is uncertainty regarding electricity supply.
“Over and above that, there is huge uncertainty regarding the state of the world economy and whether that is going to slide into recession as a result of the spread of the coronavirus,” Jammine said.
“We now have a 10 percent contraction, let alone an increase, in fixed capital formation. Businesses have just lost hope for South Africa’s future given the policy uncertainty that has consistently prevailed from the government.”
Investec’s Lara Hodes said expenditure measure of the GDP yielded a negative 1.2 percent in the fourth quarter following the third quarter’ decline on changes in the inventories segment, which sliced a significant 3.3 percent off the quarterly headline outcome.
Hodes said gross fixed capital formation also fell a notable 10 percent following two consecutive quarters of growth, detracting a further 2 percent from the topline reading.
She said her forecast for growth this year was now 0.5 percent.
“A substantial rise in business confidence is required to lift fixed investment on a sustainable basis,” Hodes said.