The decision to form a unity government has been broadly welcomed by economists.
GDP data released on Tuesday showed that South Africa narrowly avoided a technical recession. But, according to analysts, the ailing economy is not out of the woods yet, with a load-shedding-heavy winter threatening to cause the country’s GDP to contract again.
According to Statistics South Africa, the economy grew 0.4% quarter-on-quarter in the first three months of 2023. This was after severe load-shedding and other headwinds caused the economy to contract by a revised 1.1% in the fourth quarter of 2022.
Though surprising, given the fact that South Africa’s energy crisis worsened in 2023, economists had expected some economic growth in the first quarter. That said, they were — and continue to be — cautious about the health of the country’s economy, which most expect will expand by less than 1% this year.
Investec chief economist Annabel Bishop suggested that the economy is much weaker than it would appear based on the first quarter data. According to her analysis, South Africa’s economy did indeed contract in the period if the distortionary base effects are removed — which would show a 0.7% quarter-on-quarter decline as opposed to the reported 0.4% growth.
Reflecting on the GDP data, Citadel’s chief economist Maarten Ackerman was similarly cynical about the true state of the country’s economy, which he said is already in a recessionary environment.
“Population growth is outstripping economic growth and, to my mind, that means we are already in a per capita recession,” Ackerman said.
According to StatsSA, the economy has only grown by 0.2% year-on-year, putting the country’s GDP barely above its level before the Covid-19 pandemic. Citadel’s analysts foresee a low growth rate of less than 0.3% for the rest of the year, which is in line with the South African Reserve Bank’s forecasts.
Others, however, foresee even weaker growth in 2023. This week, the International Monetary Fund (IMF) reiterated its view that South Africa’s economy may only record real GDP growth of 0.1%, citing a significant increase in the intensity of power outages, weaker commodity prices and a global downturn.
Meanwhile, South Africa’s annual population growth rate has generally exceeded 1% over the past two decades.
The IMF expects economic growth to average 1.5% over the medium term, more-or-less in line with the national treasury’s expectations. This rate is well below the pace needed to create enough jobs for an expanding labour market.
Though the country’s unemployment rate has retreated somewhat, joblessness remains untenably high at 32.9% of the labour force.
According to Nedbank’s assessment of the GDP outlook, the modest bounce in the first quarter will likely be short-lived. Load-shedding, the bank’s economists noted, intensified in the second quarter of 2023, which has weighed on confidence, disrupted business operations and driven up costs.
“These pressures, combined with the downturn in global growth and commodity prices, will hurt production and exports even further in the quarters ahead. The drag emanating from the country’s negative external position will likely intensify, with exports falling short of imports.”
According to Nedbank, growth in consumer spending is also expected to slow as still sticky inflation and sharply higher interest rates squeeze household incomes.
Late last month, the Reserve Bank raised the repo rate by another painful 50 basis points, bringing the cost of borrowing to its highest level since 2009. The central bank’s decision came after the rand hit a record low against the dollar, a predicament that threatens to push up inflation long-term.
Meanwhile, the recovery in fixed investment is forecast to stall as the country’s growth prospects wane and risk perceptions worsen. StatsSA data shows that growth in gross fixed capital formation has been positive since the fourth quarter of 2021, though — save for the first quarter of 2022 — it has remained at 1.5% or much lower.
At this stage, real GDP is forecast to contract in the second quarter, before stabilising somewhat in the second half of the year, according to Nedbank. Similar to the IMF, Nedbank expects growth of only 0.1% in 2023, with the risks to the bank’s forecasts remaining on the downside.
“Given the severity of the country’s challenges, there is still a strong probability that the economy could contract over 2023 as a whole,” the bank’s economists said.
Last month, the Stellenbosch-based Bureau for Economic Research (BER) noted that Eskom’s warnings that the country could be pushed into stage eight load-shedding during winter raised the possibility of real GDP contractions in the second and third quarters of 2023 — as well for the calendar year. At the time, the BER said it would hold off from downscaling its 2023 GDP forecast of 0.2%, pending the results of its business surveys.
The BER’s business confidence index, compiled in partnership with Rand Merchant Bank, was released on Wednesday. The index declined for a fifth consecutive quarter, deteriorating nine points from 36 in the first quarter to 27 in the second — marking the lowest level of confidence since 2020.
“It remains unclear as to what will meaningfully lift confidence over the short term, especially as load-shedding could get worse over the winter months. Indeed, while just skirting a recession in the first quarter of 2023, the South African economy is far from being out of the woods,” the press release that accompanied the index read.
“More concerning is the fact that consecutive quarters of business confidence below 30 have historically coincided with contractions in either fixed investment, economic growth, or both.”