S&P Global has revised South Africa’s growth forecast for 2023 as the intensifying electricity crisis and rising cost of living cripple every prospect of meaningful economic activity.
The ratings agency yesterday forecast that South Africa's economy will now grow 0.7% this year, down from a 1.6% forecast given in June 2022 due to the ongoing bout of power cuts.
This growth forecast is more optimistic than the Reserve Bank’s estimate of 0.2% this year as load shedding is expected to worsen during the winter months amid rising levels of unplanned breakdowns of Eskom’s coal-fired power fleet.
Eskom has been implementing heightened load shedding of up to Stage 6 for the better part of this year, with an unprecedented Stage 8 load shedding also forecast in winter when demand is at its peak.
According to Statistics South Africa, the volume of electricity generated was down a marked 7.7% year on year in the three months ended in March.
Investec economist Lara Hodes said the country’s ongoing challenges with electricity supply would seriously impact economic outcomes as industries do not produce at optimum levels.
“Indeed, the domestic demand environment remains subdued, with ongoing, heightened load shedding weighing heavily on economic activity,” Hodes said.
“Moreover, Eskom warned in its State of the System and Winter Outlook briefing that the power system is severely constrained and there is a high risk of elevated stages of load shedding in winter.”
This as S&P yesterday forecast that economic growth in key sub-Saharan African economies would slow this year as weaker global growth makes the backdrop less favourable and high interest rates deter investment.
S&P said it now forecast the gross domestic product of eight sub-Saharan African economies it tracks would expand 2.9% in 2023, down from 3.4% in 2022.
This report included economic forecasts for Angola, Democratic Republic of Congo, Ethiopia, Ghana, Kenya, Mozambique, Nigeria and South Africa.
The latest forecast is slightly more gloomy than a research report from June last year that predicted 2023 growth of 3.2% for seven African economies.
The ratings agency said the economic environment remained far from growth friendly, reflecting elevated policy uncertainty and above-average systemic financial stress.
Policymakers faced a tricky trade-off between public debt management, especially given higher interest rates, and macroeconomic stability, it said.
However, S&P said the end of the Covid-19 pandemic, the reopening of tourism and services sectors, and falling food and fuel prices should bring some relief.
The Democratic Republic of Congo and Ethiopia were poised to be the growth leaders in 2023 with GDP expansions of 6% this year, supported by mining in Congo and a recovery in investment in Ethiopia after a ceasefire between the government and Tigray forces.
Looking to 2024, S&P projected average growth of 3.4% in the eight countries.
BUSINESS REPORT