South Africa’s economy could have begun slipping into a technical recession in the final three months of 2022, dragged lower by heightened power cuts and the elevated cost of living.
The warning was issued today by Nedbank economists who published their expectations for the fourth quarter of 2022 gross domestic product (GDP) ahead of its release by Statistics South Africa (Stats SA) tomorrow.
Nedbank noted the economy enjoyed only two days without load shedding in the fourth quarter, and the hours per day without electricity increased dramatically, with 51% of the quarter at load shedding stages 3-6.
“Based on our calculations, real GDP is likely to shrink by a further 0.4% in the first quarter, which means that the economy probably entered a recession in the final quarter of last year,” Nedbank said.
“While load shedding is mainly to blame, other downward pressure emanated from sticky inflation, exceptionally high food prices, and the sharp rise in interest rates.”
Nedbank economists are also forecasting a further contraction of 0.4% in the first quarter of 2023, with a modest improvement in growth outcomes over the following quarters, restricting GDP growth in calendar 2023 to a weak 0.4%.
They said the anticipated improvement later this year was premised on the assumption of a more predictable load shedding schedule, where Eskom restricts outages to stages 3 to 4 on average from the second quarter onwards.
“While this will still depress output and sales, greater predictability and the ongoing adaptation within the private sector should facilitate a weak recovery over the last three quarters of the year,” they said.
“We, therefore, expect GDP growth of only 0.4% in 2023, which is a significant downward revision from 0.7% previously. Even with this considerable downgrade, the risks to our forecasts remain on the downside.”
Although evidence suggests many industries have adapted to the lower stages of load-shedding, there is little doubt that few businesses were prepared for the unprecedented levels of power outages experienced throughout the fourth quarter, especially in December.
Recently published economic outlook by PwC said load shedding in 2022 reduced South Africa’s real GDP growth by up to 5%, despite businesses and members of the public mitigating against the impact of power cuts.
Meanwhile, FNB also estimated the economy relapsed by 0.4% in the fourth quarter of 2022, following better-than-expected growth of 1.6% in the third quarter.
They said the decline in the fourth quarter will confirm economy-wide weakness, but more particularly in the goods-producing sectors.
“Generally, load shedding intensified in the fourth quarter relative to the third quarter. This means that the impact of load shedding on GDP growth in the fourth quarter would have been more material than the 2.3 percentage points that the Reserve Bank estimated for the third quarter,” FNB said.
“Overall, the most significant threat to economic stability is the ongoing hard power shortages which, by our current forecast, have effectively pushed the economy into a two-quarter technical recession between the fourth quarter of 2022 and the first quarter of 2023.”
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