South Africa likely in a technical recession

South Africa’s economy is likely in a technical recession as intensified power cuts and heightened uncertainty caused by Russia’s war with Ukraine rippled through global financial markets.

The economy likely contracted for a second consecutive quarter in the three months through September, Gina Schoeman, an economist at Citibank South Africa, said at the Bloomberg Capital Markets Forum in Johannesburg on Wednesday.

“We were coming off a very high base in the first quarter. In the third quarter, the power outages, which we call load-shedding, has been enough to obviously pull that back,” Schoeman said.

“Alongside that the inflation spike — the combination of that means that currently third quarter growth is tracking negative which means we are very likely to fall into technical recession now because of our own local factors.”

South Africa’s gross domestic product contracted 0.7% in the second quarter compared with downwardly revised growth of 1.7% in the previous three months, Statistics South Africa said in September.

The size of the continent’s most industrialized economy became smaller than it was before the coronavirus pandemic after the worst flooding in almost three decades and severe power outages.

“We actually end up this year just shy of 2% growth,” Schoeman said. “If we look at our historical average, outside of the Covid years, it isn’t too bad going.”

Commodity Boom

While South Africa’s medium-term budget, which Finance Minister Enoch Godongwana will present on Oct. 26, may show that the country’s finances have benefited from the commodity boom, issues with export capacity have limited gains, according to Schoeman.

“You’re going to get next week, another budget coming out of South Africa that’s going to be better than they thought it would be simply because of commodity prices,” she said.

“We haven’t been able to do anything to really up our export volumes, it’s all been a price effect, so we’ve effectively missed out on another commodity price cycle, which comes down to a lot of our local issues.”

The country’s biggest exporters have had to revise their shipments due to reduced capacity at Transnet SOC Ltd. terminals.

The state-owned freight rail operator has been marred with logistics interruptions exacerbated by flooding, ageing infrastructure and security-related problems.


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