The Bank of America has reduced SA’s economic growth forecast for 2023, a third revision in just two months, largely due to greater energy supply shortages that, the bank says, have worsened and become more binding than those of 2022.
Speaking at a virtual meeting last week, the bank’s economist for Sub-Saharan Africa, Tatonga Rusike, said the blackouts appear to be getting worse, more frequent and longer than previously expected.
“The big impact on GDP is from the drag on productive sectors, such as mining, manufacturing, trade, and services, through lost revenues when production and sales schedules are changed to accommodate blackout periods,” Rusike said. “For instance, the agribusiness that relies on irrigation farming, small business sectors that close during blackouts and big businesses that scale down capacity.”
He said as a result, the bank has revised downwards their GDP forecast for 2023 to 1%, down from 1.3% in December and 1.5% in November, “our third iteration in two months”.
“Weaknesses in energy supply are set to remain binding over the next six months. We are past the Covid-19-related bounce of 2021, with a strong real GDP growth recovery of 5% and above 2% in 2022,” said Rusike.
Largest risk
Rolling blackouts are now SA’s single largest risk and threat to economic growth.
Eskom’s energy availability factor fell from the usual 70s to below 60 in 2022 and now hovers around 50.
Recent shortages can be related to power plants going on both planned and unplanned maintenance, and to the diesel budget running out last October. Eskom uses diesel for open-cycle gas turbines and spent R11.2bn vs its budget of R11bn.
Last December, the National Treasury refused Eskom’s request for additional diesel-related spending, stating that requests are supposed to be processed within budget processes in February and October rather than ad hoc during the year — leading to increased blackouts and weakened growth.
“The energy supply drags are likely to weaken growth further than our current baseline,” he said.
Other factors likely to weigh on growth this year include high inflation and the effects of cumulative rate hikes since November 2021.
Even though December headline CPI moderated to 7.2% annually from 7.4% in November, it remains well above the 3%-6% Reserve Bank target range. Core inflation also remains above the Bank’s preferred midway rate of 4.5%, even after declining by 0.1 percentage point in December, from 5% to 4.9%.
“The continuing deceleration in domestic inflation is welcome,” Rusike said. “Equally pleasing, global banks are starting to slow their own pace of hiking. We think the combination of global and domestic inflation dynamics will help the Bank to slow hiking to 25 bps [on Thursday], with a last hike of 25 bps in March, wrapping up the repo rate at 7.5%.”
The two are still likely to slow consumption spending this year, also affecting GDP.
But there are positive signals of economic growth. A recovery of economic activity in China is usually positive for SA through the commodities export channel with China’s reopening likely to provide important support to some of the main sectors.
Rusike said that while commodity prices could be favourable for the next few months, volume constraints, particularly of bulk commodities, have often constrained maximising gains from high commodity prices.
He said the potential benefits of China reopening are complicated by weakening global growth and recession concern, more frequent electricity blackouts domestically all presenting a gloomy economic outlook for SA this year.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.