Economists see a 45 percent chance of a SA recession in 2023 as load shedding worsens

South Africa faces a 45 percent chance of slipping into recession this year as South Africa’s power crisis deepens, according to a Bloomberg poll of economists this month.

The odds of that happening in the next 12 months rose from 35% in November, around the start of the longest streak of consecutive daily blackouts. The last monthly Bloomberg survey of economists was conducted Jan. 9-12, with seven economists responding to a question about the likelihood of a recession.

The prediction comes as the country’s ongoing energy crisis risks worsening and the gloomy global economic outlook threatens to further curb domestic production. The prospects for South Africa’s economy in 2023 “are not impressive,” Finance Minister Enoch Godongwana said last week, citing electricity shortages.

Eskom, the state-owned company that produces almost all of South Africa’s electricity, has subjected the country to record blackouts over the past seven days — up to 12 hours a day — in a bid to save the power grid from collapsing mainly due to its aging coal-fired power plants falling the end.

It has already used up money on diesel deliveries allocated to fuel relief agencies for the year to March and a unit at its nuclear power plant has been shut down for conversion, meaning further failures in its assets and infrastructure could bring South Africa to its peak of failures yet.

Prolonged outages, namely load shedding, at the current “extreme levels” are the most significant downside risk to the country’s economic growth prospects, Tracey-Lee Solomon, Romano Harold and Hugo Pienaar of the Bureau for Economic Research said in a note published on its website Monday.

According to Bloomberg’s survey, the economy is not expected to grow more than 0.3% qoq through 2023. Economists expect GDP growth to slow to 1.2% this year from 2.3% in 2022.

While inflation is expected to moderate, it will only return close to 4.5% in the fourth quarter – the midpoint of the central bank’s target range, where the Monetary Policy Committee prefers to anchor price growth expectations – before accelerating again into 2024.

The South African Reserve Bank is likely to continue its most aggressive monetary tightening in at least two decades, with interest rates rising to 7.5% from the current 7.5% by the end of the first quarter. According to economists, a gradual easing of borrowing costs will begin in the fourth quarter. The central bank will make the next decision on the key interest rate on January 26th.

-With the support of Rene Vollgraaff.

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