The news that the South African economy contracted in the fourth quarter of last year could be the forerunner of a prolonged recession if severe loadshedding persists this year.
Statistics South Africa (StatsSA) announced earlier this month that the local economy contracted 1.3% in the fourth quarter of 2022 compared to the third quarter of last year. However, economic growth for 2022 averaged 2%.
ETM Analytics head of research George Glynos told Sunday World that the latest economic figures confirmed that activity was contracting, which was important, especially in a country with high unemployment. “A shrinking economy means it will be harder for ordinary people to find jobs and earn a living,” he added.
FNB said that employee income grew by 4.1% year on year in the fourth quarter, down from 5% year on year in the third quarter of 2022.
“Compensation averaged 5.2% in 2022, down from 6.8% in 2021, but still higher than 4.5% in 2019 – reflecting living pressures with headline inflation of 6.9% in 2022,” FNB said in a note.
In addition to inflation, consumers face higher interest rates. “The estimated impact of loadshedding on growth last year spans a wide range from 1.3% by Absa to 5% according to PwC,” Momentum economic analysts wrote.
FNB senior economist Thanda Sithole wrote that the fourth quarter’s GDP figures were a “material setback”.
He said the major threat to economic stability was power shortages. In addition, loadshedding will likely push the local economy into a two-quarter recession lasting from the fourth quarter of 2022 to the first quarter of 2023.
“Should intensified loadshedding persists… a prolonged recession is likely. Private sector fixed-investment growth will be curtailed, threatening the job market recovery,” he added.
“Slowing global growth, especially from South Africa’s major trading partners, and logistical issues could constrain export volumes, further depressing economic growth and government revenue,” Sithole said.
FNB expects the local economy to expand by 0.4% this year.
Momentum Investments analysts said the mining sector contracted the most of any industry in 2022 by 7% compared to 2021.
“Production in this sector was constrained by loadshedding and disruptions in the logistics network due to the strike at Transnet and two significant derailments,” the Momentum analysts wrote. This sector is expected to remain constrained because mining production is stagnant, and commodity prices are coming down,” they added.
The utility sector contracted 2.6% in 2022.
“This is no surprise given that loadshedding reached record levels last year,” the Momentum analysts wrote.
“The transport and communications sector recorded strong growth of 8.6% in 2022 compared to 2021. This is off a low base due to the impact of the July 2021
riots. However, the constraints experienced by Transnet will likely restrict growth in 2023,” they added.
The maladministration at state-owned enterprises, most notably Eskom and Transnet, is losing the local economy tens of billions of rand.
Glynos said South Africa could gain an extra 1% in economic growth without loadshedding and logistics issues.
“Amazingly, the South African economy hasn’t contracted much more, given all the challenges it faces,” he added.
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