Standard Bank is more optimistic than others about SA’s growth projections in 2023, citing improvements in global prospects over the past two months. Especially the reopening of China’s economy and initial signs of global disinflation have provided some cheer to the domestic economic outlook even as the government fails to curtail rolling blackouts.
At the bank’s 2023 economic session on Thursday, Standard Bank chief economist Goolam Ballim said domestic factors contributing to SA’s outlook include the move to self-generation by households and businesses, which may increase credit purchases and stoke aggregate demand, while improving productive capacity.
This is why the bank forecasts GDP to grow 1.3% in 2023, he said. This is a whole percentage point higher than the SA Reserve Bank’s most recent projection of 0.3% for this year.
The worsening power crisis in SA has been a theme in the downgrading of the country’s GDP projections for 2023 and in the medium term.
SA kicked off the year with sustained high levels of load-shedding which are set to be a feature for the next 12 to 24 months. The country has not experienced a single day without scheduled power outages so far this year with the number of days at stage 6, which means four-hourly outages two to three times a day, already nearing the record set in 2022.
The effect of load-shedding is also seen in high-frequency statistics, which have so far suggested that the economy has relapsed.
Industrial production, made up of mining, manufacturing and electricity production and contributing 19.6% of GDP, has been the hardest hit by rolling power outages.
This can be seen in the mining sector output which fell for the 11th consecutive month in December, posting a 7.2% contraction in 2022 compared with an increase of 11.6% in 2021.
Ballim said while not underestimating the impact of the rotational power outages SA has endured over the past year, the large gap with the Reserve Bank’s estimates is due to Standard Bank’s GDP forecast including a “buffer for load-shedding”.
“I suspect the [Reserve Bank] has infused in its forecast a higher degree of load-shedding persistence while we are infusing some buffer by virtue of auxiliary systems in renewable energy being invested in by households and businesses in our own forecast,” Ballim said.
In a statement, the Stellenbosch-based Bureau for Economic Research (BER) said the Bank’s growth downgrades are largely a function of a significantly worse assumption on the frequency and severity of future load-shedding.
“This sparked a debate in parts of the analyst community about whether the Bank is underestimating the extent to which the large-scale utilisation of diesel generators and rooftop solar panels is shielding the economy against the worst impacts of power cuts,” the BER said.
Ballim said SA is going through enormous structural changes in terms of the adoption of power supply in homes and businesses.
“And more fundamentally, in terms of securing power supply it is quite conceivable that SA can adopt up to 1GW of power per year through this mechanism. And 1GW power per year would speak to one level of load-shedding reduction,” he said.
Another reason Standard Bank gave for its more optimistic outlook is the change in global perspectives. Ballim said only two months ago, many would have had a dire perspective on the outlook for 2023. However, in the meantime there has been a reasonable level of movement and perspective that the global economy will begin to perform slightly better.
“At least 80% of the economies in the world are now experiencing disinflation and inflation is likely to decelerate. This brings the idea that monetary policy in various markets is also going to be a little easier in due course,” he said.
Ballim said China’s removal of its Covid-19 restrictions, which has lifted the country’s GDP prospects to 5.5%-6%, is even more significant for SA.
“The spillovers from China are going to be meaningful for the region and for commodity currencies and this is where SA is going to be favourable,” he said. “In other words, we have enjoyed buoyant commodity earnings for the last two years and not just in mining sector earnings, share prices and the stock markets, but also through fiscal revenue.”
He said SA’s export markets are expected to be “reasonably strong” this year, but added that in order for exports to be a lever of growth, the country needs to be able to transport, ship, and ensure that the logistics infrastructure satisfies that external demand.
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