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Some good news for South Africa’s economy – but there’s a big catch

Investec chief economist Annabel Bishop says that a domestic recession is not expected in South Africa this year; however, increased load shedding could be a tipping point.

Bishop noted this week that multiple analysts have taken the stance that there is a lower chance of a recession in South Africa in light of relatively stable growth predictions.

“A week ago, Bloomberg released the economic consensus expectation for South Africa’s GDP growth this year, at 1.2% year-on-year, with Reuters showing the same estimate, and FocusEconomics 1.3% year-on-year,” said Bishop.

The economist said that the latest January consensus from Bloomberg also shows no recession in South Africa this year, but rather weak economic growth of 0.3% quarter-on-quarter, for the first three quarters of 2023, and 0.4% quarter-on-quarter for the final quarter of 2023.

According to Bishop, Investec forecasts GDP growth at the start of January, at 1.1% y/y for this year, but material risks to this include the recent worsening of the electricity crisis, along with Transnet’s rail and port capabilities, which threaten exports.

Despite this outlook, South Africa still faces a 45% chance of slipping into recession if the load-shedding crisis deepens, according to economists.

In November last year, when load shedding hit its longest streak, the likelihood of a domestic recession crept up from 35%.

The government has arrived late to the party dealing with Eskom’s failings; however, recent pleas from South Africans across the board have lit a fire under various departments to do something.

Although efforts to fast-track renewable projects and cut red tape are abundant, the entrenched issues of the national power utility continue to show face, with Eskom recently pushing the country to stage 4 and stage 5 load shedding as more power units fail.

Global outlook

In a global context, the outlook may improve; however, the International Monetary Fund (IMF) still projects 2023 as a difficult year for growth to fall further.

Even so, the IMF does not expect a global recession.

The IMF’s 2023 global growth outlook forecasts an overall 2.7% increase in GDP. The latest World Economic Outlook is expected to be released early next week, which will give an update to global and local forecasts.

“2023 is expected to see supply chains strengthen and associated cost increases slow, while H2.23 sees recovery from the slowdown in economic growth evident already in H2.22, boosting trade volumes,” said Bishop.

Even though the IMF believes the global economy will dodge a recession, Managing Director Kristalina Georgieva still predicts that one-third of the world’s economies will slip into recession at some point in 2023, with the biggest impacts being felt in emerging and developing economies.

Georgieva singled out Russia’s invasion of Ukraine as the largest negative contributor to the world economy in 2023, warning that it could push half of Europe into recession.

Covid-19 also remains a threat. While the virus has moved to an endemic stage in many countries, China – the second biggest economy in the world – has given markets whiplash with rapid policy U-turns, with a strict zero-Covid policy moving to open markets in a short space of time.

The IMF MD noted that this is likely to continue feeding “bushfires” around Covid in the country, feeding into a slowing economy.

However, despite these two large sticking points, a resilient US economy and job markets might be the saving grace, with Georgieva pointing out that unemployment remains low – despite a bloodbath in the tech sector – and wages are growing.

The downside for emerging markets, however, is that a stronger US economy puts pressure on countries in the developing world to be heavily indebted. Emerging markets were already at a disadvantage, she said, but the current conditions make it even more so.

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