SA skirts technical recession but economic outlook still gloomy


South Africa may have escaped a technical recession for now and had some reprieve from Stage 4 to 6 load-shedding over the past few days, but business confidence is low, and the economic outlook remains bleak.

This is according to the latest Bureau for Economic Research’s Weekly Review released on Monday, which noted that the rand recouped most of its recent losses and traded stronger than R19/$ during the second half of the week. The economy avoided slipping into a technical recession during the first quarter and grew 0.4% quarter-on-quarter.

“More unexpected, but very welcome, was data showing a narrowing of the current account deficit in Q1 and April factory output data beating consensus forecasts,” BER economists noted in the report.

“There was also some daytime reprieve from load-shedding as Eskom’s energy availability factor improved because of a seasonal cutback in planned maintenance that added generating units to the grid, less, although still significant unplanned outages, and a substantial boost from wind energy generation.”

Electricity demand was also lower than Eskom had projected as higher winter electricity tariffs kicked in, resulting in power-intensive smelters scaling back operations. 

“Amid the reprieve from bad news, staying true to our profession as economists, we also need to highlight the other side of last week’s news cycle. Business sentiment, as measured by the RMB/BER Business Confidence Index (BCI), slumped by a significant 9 points in Q2 to just 27,” the economists said.

“Business executives across the different sectors included in the composite BCI noted declining output and/or sales volumes. Concerns about load-shedding (and worries of more to come) and pressure on profitability amid elevated inflation and fast-rising borrowing costs also weighed on sentiment,” the BER said.

The economists added that the tough business environment, which was not conducive to (non-energy) Capex growth or meaningful job creation, hurt productive capacity over the long term. 

In its latest annual Article IV Assessment of South Africa, the International Monetary Fund (IMF) stressed the urgency of structural reforms beyond the energy sector and linked this as a key driver of local and international investor sentiment towards the country.  

The IMF expressed concerns about SA’s fiscal consolidation plans as the fund does not see debt levels stabilising as National Treasury projects. The Fund’s baseline forecast is for 0.1% real GDP growth for SA in 2023, but its downside forecast has a contraction of 1.8% for this year. 

“The IMF’s growth outlook compares with the June updates from both the World Bank and OECD for SA to record 0.3% growth in 2023. We are currently at 0.2%,” the economists said.

SA barely dodged a recession in the first quarter, and depending on the extent of power cuts in the rest of June and the coming months, economists said another contraction in Q2 and/or Q3 remained a real possibility. 

“Broadly speaking, the overall near-term SA economic outlook remains very bleak,” the economists said.

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