South Africa’s dismal economic growth forecast
South Africa may avoid slipping into a technical recession in the first quarter of 2023 with “bizarre month-on-month numbers” indicating that growth will be flat but not negative.
This is according to Nedbank chief economist Nicky Weimar who spoke to The Money Show’s Bruce Whitfield on 702.
South Africa’s economy contracted 1.3% in the last quarter of 2022 due to elevated levels of load-shedding.
Eskom’s performance deteriorated further at the beginning of 2023, with load-shedding reaching record highs.
However, according to Weimar, the country is unlikely to see two consecutive quarters of negative GDP growth, meaning the economy is in a technical recession.
“We had these bizarre month-on-month numbers” for industries including mining, manufacturing, and even electricity production, indicating that the economy stabilised in March.
Weimar said that South Africa’s economy exhibited positive economic performance in January, which sharply declined in February. March’s numbers indicate flat growth near zero per cent.
The economy is also coming off a low base in the last quarter of 2022, making it unlikely to see another set of negative GDP numbers.
Economy is stagnant
Weimar said that the economy is not in a good place but rather “it is in trouble, deep trouble”.
Growth is unlikely to be negative in the first quarter of 2023 but will not be much above zero and will probably be negative year-on-year.
Avoiding a technical recession “is semantics” with real economic performance deteriorating.
The main contributor to zero growth is the country’s unstable electricity supply which has made a recession very likely in South Africa over the next 12 months.
Maarten Ackerman, the chief economist at Citadel, also sees minimal growth in 2023, mainly due to load-shedding.
The other reason for the no-growth projection is that consumers are under severe pressure. High unemployment, rising interest rates, the cost of living, and take-home pay being under pressure all make for a tough environment in 2023.
Ackerman flagged exports, agriculture, mining, manufacturing and construction as key sectors for growth in 2023.
Citadel looked at economic growth over three years, and the good news is that Ackerman believes there is reason to be optimistic beyond 2023.
From a low base into 2024 and 2025, Ackerman said growth could be around 1.5% by 2025. If significant alternative energy comes online, growth of 1.8% can be expected.
Institutions see flat growth, not negative
Weimar’s comments come after global economic institutions such as Fitch and the International Monetary Fund have downgraded the country’s future growth.
Fitch has taken a substantially more bearish view of South Africa’s growth prospects, reducing its GDP growth forecast to just 0.2% for 2023.
This is down from its previous forecast of 1.1% at the beginning of 2023. Fitch expects growth of 1.2% in 2024, weaker than its initial projection of 1.7%.
The agency expects load-shedding to have a noticeable effect on longer-term potential growth if not resolved swiftly.
The IMF announced that it expects South Africa’s real GDP growth to decelerate to 0.1% in 2023, mainly due to the effects of load-shedding.
The South African Reserve Bank (SARB) expects 0.2% growth in 2023 and 1% in 2024.