Absa Bank has painted a grim picture of the impact of load shedding on South Africa’s economic growth outlook for 2023, saying that the country remained in something of a “polycrisis” and “at risk of a rupture”.
This comes as crippling power cuts in South Africa, which have been implemented on a daily basis this year, have cost the economy billions of rand in lost activity.
Load shedding has been a daily occurrence since late last year, with the last reprieve on December 25 to allow people to enjoy Christmas.
In its quarterly perspectives yesterday, Absa cut its gross domestic product (GDP) forecast for the fourth quarter of 2022, saying South Africa’s economy will likely shrink 0.5% in the three months to December, down from 0.3% growth previously.
Absa corporate and investment banking senior economist, Peter Worthington, said the contraction in mining and manufacturing production looked set to subtract from growth in the fourth quarter.
Statistics South Africa will this month release the fourth quarter’s GDP data, and the overall economic growth figure after real GDP increased by 1.6% in the third quarter.
Worthington said they believed December, with its extreme load shedding, was likely to be negative across the board when the activity data is published this month.
He said they had also projected another contraction in the first quarter of this year.
“We now expect another GDP contraction in the first quarter of 2023 of 0.2% quarter-on-quarter, off an already weak base in the fourth quarter of 2022,” Worthington said.
“For 2023 as a whole, the impact of power cuts on activity levels, business confidence and private investment cuts our GDP forecast by 0.9 percentage points to 0.7%.
“Consumers have proved surprisingly resilient in 2022 despite headwinds, but for 2023 we are halving our household consumption forecast from 0.8% to 0.4% as wage settlements are not likely to fully catch up to recent inflation. Also employment growth remains modest, and higher interest rates erode disposable income,” Worthington said.
Absa’s GDP forecast is better than the SA Reserve Bank’s downwardly revised growth outlook of 0.3% for 2023, but is pessimistic against the 1.3% forecast by Standard Bank.
Over the weekend, Standard Bank said business confidence in the country, consumer finances, and many other economic indicators were better than feared late last year.
On Friday, Moody’s Investor Services warned that load shedding’s effect on businesses, consumer sentiment and investment would weaken the country’s already subdued economic growth prospects, and threaten social and political stability.
Worthington yesterday concurred that power cuts weighed on confidence, and were dampening consumer and investor spending, with Absa’s econometric analysis finding that for each 1% of electricity demand not satisfied, GDP was knocked back by 0.16%.
He also said they were expecting regular load shedding through to the end of 2024 at least, assuming an average of Stage 3.5 in February and Stage 3 in March before an average of Stage 2.5 in the second quarter, and perhaps Stage 2 over the remainder of the year provided Eskom gets more diesel funding and/or it makes some progress on plant rehabilitation.
“It will be hard to lift the performance of Eskom’s existing plants, and new power supply takes time to procure and construct,” Worthington said.
“Other structural reform progress remains slow and patchy, although the government recently added four new important reforms to Operation Vulindlela’s to-do list.”
Overall, Absa said risks to the outlook have improved slightly but remain skewed to the downside, with load shedding’s impact on the economy seemingly worse in the near term. Though there was an accelerated reform push to at least partially alleviate it over the medium term.
Absa said it forecast somewhat improved prospects for politics, the fiscus and the global economic cycle, but continued to view the balance of risks as tilted to the downside, as long as business sentiment remained weak overall and GDP continued to expand slowly.
BUSINESS REPORT