JOHANNESBURG - The announcement late yesterday afternoon that Eskom was implementing the unprecedented stage 6 load shedding schedule, has had many commentators predicting that this will definitely mean that the country will enter a recession once Q4 GDP figures are released.
As always it is very difficult to forecast the impact on growth from loadshedding as you need to make assumptions on the severity and duration of the loadshedding. While the most current situation is severe, other than breakdowns in aging power stations and scheduled maintenance, the special factors this time around include the breakdown of a coal feeder at Medupi and wet and substandard coal due to heavy rainfall. These special factors might not continue and a lot of maintenance has been done over the past two years compared to the previous 20 years.
Therefore it is unlikely that stage 4 or 6 will continue every day for months to come. In addition, we are already in December, with many businesses scaling down. However, the impact from closed mines will be significant.
The far more important impact to note will come from shattered confidence. In my opinion, the impact on Q4 and 2019 growth, as well as the question of another recession, are moot points. 2019 growth was already going to offer weak growth– neither a very weak Q4 nor a potential rebound would have changed that much. Even if there is still a Q4 rebound (let’s say from -0.6% quarter-on-quarter annualised in Q3 to 1.0% in Q4, as opposed to 2.5% before this past week’s loadshedding), 2019 growth will at best be around 0.3% or 0.4% (compared to my previous expectation of 0.5%).
Any way you look at it, weak growth is weak growth. Even another Q4 negative number – thus a technical recession – is not so significant, especially when you consider the far more important issue of virtually no growth for five consecutive years. Annual average growth over the past five years (2019 included) was less than 1% p.a. That is by far a more pressing issue than another technical recession. This growth over the past five years – and the resultant impact on per capita incomes, fiscal deficit and debt ratios – means we have already been in a recession for a long time.
However, all of this is looking back into the past. 2019 is a done deal. Looking forward, I still believe that reforms can help confidence and growth. Yes, 2020 growth will not be great, but it will still be better than 2019’s growth. Gradually we will get out of this current situation. When it comes to investing, we have to ignore the noise and look forward. Winds of Change are still blowing.
Johann Els is the chief economist and head of economic research at Old Mutual Investment Group
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