SA economy could be reignited by rate cuts
JOHANNESBURG - Eskom load shedding has put further pressure on the already strained South Africa economy after the utility intensified power cuts this week leaving the country at the mercy of the SA Reserve Bank (Sarb) to cut interest rates in order to reignite growth.
The rotational power cuts came as manufacturing output eased 2 percent in January while mining production fell 1.1 percent in the three months ended January.
The struggling power utility said load shedding would continue throughout the weekend. Economists have said that South Africa’s growth prospects would retrogress further as coronavirus has stalled global growth and hampered demand for domestic exports of goods and services.
Investec chief economist Annabel Bishop said South Africa’s growth was now likely to come out at 0.1 percent this year due to the negative impact of load shedding which is proving to be more severe than Eskom initially indicated.
Bishop said Sarb would this week have to revise down its growth forecast from 1.2 percent year-on-year for 2020 to likely closer to 0.5 percent if not closer to 0 percent as supply constraints weigh in.
“Loadshedding has contributed to weakening the economic growth outlook for SA, with the outlook already fragile given the impact of Covid-19 on global economic growth, and hence on demand for SA’s exports,” Bishop said.
Next week, Sarb would announce its decision on rates.
But power cuts would weigh down sentiment as Eskom this week said the recent bout of power cuts was necessitated by breakdowns at Koeberg unit 1, the country's only nuclear plant, due to a fault on the turbine side though the nuclear reactor remained safe.
The utility indicated that load shedding would continue until its ageing fleet was normalised through proper maintenance.
“As the ageing fleet is currently constrained, unpredictable and vulnerable, we advise South Africans that the stage of load shedding may change at short notice should there be any unexpected change in the generation system performance,” it said.
“Demand has also risen incrementally since January.”
Load shedding has also sliced the country’s business confidence, which deteriorated and registered the lowest print in over two decades in this year’s first three months as companies dissatisfied.
Private sector fixed investment has also remained lacklustre and there remains little evidence to suggest that a meaningful turnaround can be expected in the coming year.
FNB has said the economy would weaken further on coronavirus with exports the hardest hit.
The bank said Sarb would have to take this into consideration when they deliberate their rate decision next week after cutting interest rates by 25 basis points in January.
“This, combined with already weak domestic demand and continued electricity shortages, points to a prolonged recession; there will possibly be another two consecutive quarters of negative real GDP growth in the first half of 2020,” FNB said.
“As such, we expect the SARB to cut interest rates by 25 basis points on Thursday – but we are not ruling out the possibility of an even more aggressive cut.”