The projected growth rebound this year has been thrown into a tailspin as lockdown restrictions, rising fuel prices and power cuts threaten to push the country’s already struggling economy further into the abyss. Photo: Bloomberg
The projected growth rebound this year has been thrown into a tailspin as lockdown restrictions, rising fuel prices and power cuts threaten to push the country’s already struggling economy further into the abyss. Photo: Bloomberg

Projected SA growth thrown into tailspin by Eskom, lockdown curbs

By Siphelele Dludla Time of article published Jan 19, 2021

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JOHANNESBURG - THE PROJECTED growth rebound this year has been thrown into a tailspin as lockdown restrictions, rising fuel prices and power cuts threaten to push the country’s already struggling economy further into the abyss.

Eskom power cuts entered the fifth day in a row yesterday, with experts warning that the lack of energy could spell more doom for the economy.

Eskom said the return to service of two generation units at Kusile power station had been delayed.

Investec’s chief economist Annabel Bishop said gross domestic product (GDP) was now expected to expand by 2.9percent this year.

Bishop, however, said more severe load shedding than Eskom previously indicated last year for 2021 would harm this outcome.

“Eskom continues to suffer from legacy effects of previous mismanagement, the run up of high debt levels and low capacity to supply enough electricity for a growing economy,” she said.

“South Africa risks seeing growth not even reach 2 percent year-on-year this year if load shedding intensifies.”

Credit ratings agencies have previously red-flagged Eskom as the single greatest risk to the country’s sovereign credit rating status.

South Africa’s economy is forecast to grow by 3.3percent in 2021 as it is expected to shrink by an unprecedented 8percent in 2020 due to the Covid-19 pandemic.

Rising oil prices have also placed upwards pressure on South Africa’s fuel prices with petrol price expected to rise around 78cents a litre and 60c a litre for diesel next month.

Brent crude prices have risen past the lows experienced last year when demand was lowest, now trading at around $56 per barrel, up from $38 a barrel seen at the end of October.

FNB senior economist Siphamandla Mkhwanazi said the economy was unlikely to experience demand-pull inflation as consumer demand was still very low.

“All pressure seems to be coming from the supply side of the economy. This places upward pressure on inflation and if inflation picks up, it will not allow room for the South African Reserve Bank to cut interest rates,” he said.

Old Mutual investment strategist Izak Odendaal was slightly optimistic about this year’s recovery.

Odendaal said 2021 should see decent real growth of 3-4 percent helped by the global economic recovery, but this was largely just the snapback from 2020’s big contraction.

“The road to recovery both abroad and at home is not going to be a straight line nor will it be smooth. For the time being, however, there is reason to be optimistic. While it doesn’t feel like 2020 is quite over, it’s ending.”

BUSINESS REPORT

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