South Africa’s leading economists are forecasting that gross domestic product (GDP) in the first quarter of 2023 will reflect the fragile economic environment characterised by intensified power cuts and rising cost of living.
This comes as Statistics South African (StatsSA) will tomorrow (TUES) release the data for after growth contracted by 1.3% quarter-on-quarter in the last three months of 2022.
The decline in growth over the quarter was largely broad-based, with only the transport, construction and personal services sectors increasing over the quarter.
Bloomberg consensus expectations are for GDP to have expanded by just over 0% in the first quarter, generally underpinned by the unexpected expansion in the electricity-intensive sectors, even as load shedding intensified in the first quarter of 2023 relative to the fourth quarter of 2022.
FNB senior economist Mamello Matikinca-Ngwenya on Friday said the economy could have experienced a “mild recession” during the first three months of this year.
Matikinca-Ngwenya said the volatile agricultural sector and unknown variations in some private services sectors remained a risk to the first quarter GDP outcome.
“Against this background and considering upcoming GDP revisions, we maintain our view of a mild recession in the first quarter,” she said.
“Nevertheless, this view has an upside risk, especially as electricity-intensive sectors defied load-shedding intensity in the reference quarter.”
The ongoing energy crisis has been a thorn in South Africa’s growth expectations as electricity shortages remained a binding constraint to economic activity.
Despite substantial fiscal support and the appointment of an electricity minister solely devoted to addressing the problem, Eskom has still not managed to improve the operating efficiency of its power plants, with the electricity availability factor hovering at a desperately low 55.9% towards the end of May.
Investec economist Lara Hodes said they forecast marginal growth of 0.4% in the first quarter.
Hodes said heightened load shedding has weighed heavily on the economy, impeding production and trade while business confidence dipped further in the first quarter of 2023.
“Manufacturing production is projected to have risen by around 2.5% y/y at the start of the second quarter, on base effects, following the destructive floods in KwaZulu Natal in April last year,” Hodes said.
“However, measured on a month-on-month basis we expect a contraction in output. Indeed, advance indications indicate that business activity remained lacklustre, hindered by heightened rotational load shedding, with the numerous domestic challenges weighing on confidence and investment potential.”
Over the quarter, the economy enjoyed only one day without load shedding, with the country spending 23 hours per day without electricity as 83% of the time load shedding was implemented at stages 3-6.
As a result, the private sector continues to bear the burden of adjustment and adaptation.
Nedbank economist Crystal Huntley said despite persistent power shortages, economic activity held up remarkably well as output and sales in most industries managed to grow though higher interest rates and fading confidence hit construction and vehicle sales.
However, Huntley said this resilience came at an enormous cost, with companies incurring much higher input costs to secure electricity by running generators for extended hours or installing renewable generation capacity.
“On average, activity rebounded off a low base in January, imploded in February and stabilised somewhat in March. Despite relentless power outages, the boost to GDP came from stronger growth among the energy-intensive primary and secondary sectors,” Huntley said.
“Altogether, we forecast real GDP growth of about 0.3% quarter-on-quarter in the first quarter, with the risk to the forecast still tilted to the downside. Therefore, we expect the economy to shrink by around 0.1% in the second quarter, before stabilising and improving marginally during the year's second half.”
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