South Africa

South Africa likely escaped technical recession

South-Africa-Economic-Growth

South Africa’s economy is likely to have averted a technical recession in the third quarter despite record power outages, key data indicates.

Better-than-expected mining and manufacturing output is set to outweigh relatively soft retail sales data, suggesting Africa’s most industrialized economy returned to growth in the third quarter after contracting 0.7% in the prior three-month period.

Mining and manufacturing make up about a fifth of total gross domestic product, while trade, which includes the retail sector, accounts for 13%.

“It’s going to be close but we do escape a technical recession,” said Sanisha Packirisamy, an economist at Momentum Investments, whose GDP tracker implies quarterly growth of 0.1% to 0.4%.

“Growth is reasonably soft and load-shedding has been one of the main factors driving that together with increased headwinds that the consumer is facing,” she said.

GDP data for the third quarter, due December 6, is expected to show how state-owned power company Eskom’s inability to produce enough electricity to meet demand is weighing on output.

The utility imposed power outages on more than half of the days of the third quarter, leading to a record 160 days of blackouts so far in 2022, according to Bloomberg calculations.

Quarterly outcomes for the energy-intensive mining and manufacturing industries are “somewhat deceptive, greatly amplified by the low base established in the second quarter, when production was struck down by some combination of the floods in KwaZulu-Natal, power outages, a prolonged strike in the gold-mining industry, and the lockdowns in China,” Nicky Weimar, Nedbank Group’s chief economist, said in a note prior to Wednesday’s retail-sales release.

Power outages are projected to shave 1 percentage point off economic growth this year, the central bank said in October.

Household spending, which accounts for about two-thirds of GDP, has also come under pressure with consumers reeling from high fuel and food prices and a cumulative 275 basis points of interest-rate increases since November.

The South African Reserve Bank and National Treasury both predict the economy will expand by 1.9% in 2022, though the former may revise its forecast on November 24, when it’s due to announce its final interest-rate decision of the year.

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