Nedbank has recently reported that the South African economy may have entered a recession in the final quarter of 2022, as severe load shedding in early 2023 has worsened the already deteriorating trading conditions. In its Industry Insights, the bank noted that every single day in January, February, and March so far has had load shedding, with 79% of the time spent at destructive stages between 3 and 6. The bank estimated that real GDP may have contracted by a further 0.4% in Q1, primarily due to load shedding, but also due to sticky inflation, exceptionally high food prices, and a sharp rise in interest rates. Nedbank forecasted that real GDP declined by 0.4% quarter-to-quarter in Q4, translating into a growth rate of 2.3% for the entire calendar year. Two consecutive quarters of negative growth indicate a technical recession.
The official GDP results for Q4 2022 will be available on Tuesday, 7 March 2023, from Statistics South Africa. Nedbank also reported that there were only two days without power outages over the fourth quarter of 2022, with hours per day without electricity increasing by 51% of the period at load shedding stages between 3 and 6. Nedbank highlighted that these paralyzing disruptions have negatively impacted output and sales in all industries and increased production costs across the board. High-frequency indicators have shown that mining and manufacturing production were hardest hit, with output declining over the quarter, while the impact was less severe in other sectors, but growth in services nonetheless slowed significantly.
The Bureau for Economic Research (BER) also predicted a fourth-quarter contraction in 2022, which is in line with Nedbank’s forecast. However, the BER has estimated a 0.5% contraction quarter-on-quarter. The research firm noted that high-frequency monthly data suggests that mining, electricity, and manufacturing output are set to contract on a quarterly basis. On 13 February, a group of six economists polled by Bloomberg found that there is a 68% chance that South Africa will see a further recession in the next 12 months. The polled economists were more certain that a recession is on the horizon, with only 45% of them indicating a recession in January. The embattled national power utility, Eskom, is the primary driver of this negative sentiment.
The lack of reliable energy for business activities has forced many analysts and economic institutions to revise their growth expectations. In late January, the South African Reserve Bank (SARB) revised its GDP growth forecast from 1.1% to 0.3% year on year. Nedbank has also revised its expected GDP growth for 2023 to 0.4%, which is a significant downward revision from 0.7% previously. However, this prediction is based on the assumption that Eskom restricts load shedding to stages 3 and 4 on average from Q2 onwards.
The BER has warned that a domestic recession may align with a global recession, as short-term interest rates remain above those for longer-term securities, indicating a likely US recession in the next 12 months.