South Africa narrowly avoided a recession in the first quarter, data showed last week, but economists and analysts warned that the country faced major growth-crippling challenges for the remainder of the year.
Africa’s most industrialised economy is in its worst power crisis on record with up to 10 hours a day of rolling electricity cuts, largely due to breakdowns in state utility Eskom’s ailing fleet of coal power stations.
The economy grew 0.4% quarter-on-quarter in the first three months of 2023, and 0.2% year-on-year, growth rates that were in line with economists’ forecast in a Reuters poll.
“It doesn’t matter,” said Arthur Karas, senior portfolio manager at Old Mutual Invest. “If you speak to anybody who’s running a business in South Africa, they’ll tell you things are extremely difficult.”
Eight of 10 industries tracked by Stats SA recorded growth in the first quarter, with manufacturing and finance, real estate and business services making the biggest positive contributions with 1.5% and 0.6% growth, respectively.
Agriculture, forestry and fishing were the biggest drag on growth, registering a 12.3% contraction.
Statistician-General Risenga Maluleke said food and drinks manufacturing had performed particularly well, partly because the sector was not as electricity-intensive as other types of manufacturing.
Analysts and economists told Reuters that investments in renewable energy and power-cut mitigating measures had allowed businesses to continue to operate. And companies have so far largely eschewed layoffs.
However, they said they expect growth to slow in the second quarter.
“It’s just giving us a bit of a cushion to the downside,” said Kevin Lings, chief economist at asset manager Stanlib, who expects negative GDP growth numbers in the second and third quarters.
“I think (companies) are treading water … They’re not making big decisions.”
On the heels of a contraction in the fourth quarter of 2022, negative growth in the first quarter of this year would have sent South Africa into a technical recession, usually defined as a fall in gross domestic product for two successive quarters.
But Hugo Pienaar, an economist at the Bureau for Economic Research, said there is little solace in Tuesday’s data release.
“You’ve contracted by a revised 1.1% in the fourth quarter and now you grew by 0.4%. So you haven’t got back the ground that you’ve lost,” he said
The central bank predicts the economy will grow 0.3% in 2023, with swingeing power cuts hurting businesses of all sizes. Eskom has warned that scheduled electricity outages may worsen in the coming southern hemisphere winter.
The International Monetary Fund is projecting growth of just 0.1%.
In addition to power cuts, tight fiscal and monetary policy and global economic headwinds will present challenges for the rest of 2023. And the strains on ordinary consumers are growing.
Also read: Grey List – South Africa’s critical outlook
Data from the National Credit Regulator shows an increasing number of South Africans are seeking credit with the rejection rate nearing 69%.
And while food manufacturing grew in the first quarter, food retailers have begun to warn they face immense price pressures that could soon be passed on to consumers.
Additional reporting by Promit Mukherjee and Rachel Savage Writing by Bhargav Acharya and Joe Bavier Editing by Alexander Winning and Emelia Sithole-Matarise