South Africa

South Africa’s growth deteriorating

South Africa down

South Africa’s growth prospects have deteriorated under the weight of Eskom’s problems, the Transnet strike, and a faltering global economy.

Absa forecasted a second consecutive gross domestic product (GDP) decline of 0.4% in the third quarter.

It leaves the bank’s growth forecast for 2022 0.7% lower since the last quarterly perspectives at 1.6%.

“Given an increasingly challenging global backdrop, we forecast growth of 1.1% in 2023 and some improvement to an average of 1.8% in 2024 to 2025,” Absa said.

One of the biggest reasons for South Africa’s poor GDP growth outlook is increased load-shedding by Eskom.

South Africa’s power rationing constraint continues to worsen as breakdowns of Eskom’s generation infrastructure multiply.

Absa’s calculations show that Q3 22 alone saw a loss of 3,691GWh of electricity supply, resulting in the single worst quarter of rolling blackouts.

The damage this inflicts on economic activity is large but complicated to calculate precisely.

“That said, we believe the relationship between electricity distribution and national output offers some clues about the short-term effects of load-shedding on the economy,” Absa said.

“We estimate that power cuts in Q3 will have shaved off around 1% of GDP growth in the quarter.”

Assuming that load-shedding eases in Q4 to a level similar to Q1 22, Absa estimates that power cuts could directly trim GDP growth by 1.3% in 2022.

Eskom’s generation system remains highly vulnerable, with the energy availability factor below 60% in recent months.

A quick turnaround in this growth-dampening situation seems unlikely without adding substantial new generating capacity.

“Consequently, we see regular bouts of cuts continuing into 2024, with further negative consequences for growth,” Absa said.

Load shedding has increased dramatically

Eskom’s plant performance has deteriorated

Industrial output has struggled