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Recession warning for South Africa

South Africa’s economy is increasingly vulnerable to a recession in the next 12 months, with an ongoing electricity crisis seen further curbing activity.

The probability of a recession stands at 68%, up from odds of 45% in January, according to Bloomberg’s latest monthly survey of economists. The poll was conducted from 3 to 9 February, with six economists responding to a question about the chance of a recession.

The prediction comes after Eskom said rolling blackouts, known locally as load shedding, are likely to persist for at least two more years as the state-owned power utility overhauls its ageing, mostly coal-fired plants.

The company, which produces almost all of South Africa’s electricity, has struggled to meet demand since 2008 and has imposed outages every day this year to protect the grid from collapse.

Sustained outages are seen as the most significant risk to economic growth.

Economists polled by Bloomberg predict the economy shrank in the final quarter of 2022 and that it’s on course to contract in the three months through March. Statistics agency data published this week showed mining and manufacturing output, which make up about a fifth of the total gross domestic product, declined in the December quarter.

The survey results are in line with expectations by Absa’s economists, including Peter Worthington and Miyelani Maluleke, who this week became the first major institution to say the economy is in a technical recession.

The impact of load shedding on economic growth in 2023 and beyond is uncertain because it isn’t clear how quickly the government and Eskom can alleviate outages, and as it’s difficult to assess how different severities of power cuts affect overall activity, the Johannesburg-based lender cautioned.

The electricity crisis is costing the country as much as R899 million per day, according to South African Reserve Bank estimates. It lowered its economic growth forecast for this year to 0.3% from 1.1%, with Governor Lesetja Kganyago saying power disruptions will shave 2 percentage points off output growth.

It predicts that electricity will be rationed for 250 days in 2023, which, if realised, will be a record.

Article: BusinessTech

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