South Africa’s economy is expected to shrink deeper into troubled waters after gross domestic product (GDP) growth fell below pre-pandemic levels in the final quarter of 2022 on the back of intensified load shedding.
Data from Statistics South Africa (StatsSA) yesterday revealed that GDP shrank by 1.3% in the fourth quarter after rallying to an upwardly revised 1.8% rise in the third quarter.
This was the sharpest contraction since the third quarter of 2021, following the big surge in rotational power outages towards the end of 2022.
StatsSA said seven out of 10 industries recorded declines during the quarter, with finance and trade the biggest drags on growth.
Agriculture recorded the largest contraction of 3.3% in the quarter, pulled lower mainly by weaker production figures for field crops and horticulture products.
The trade, catering and accommodation industry was the second largest negative contributor to growth, mainly due to a decline in wholesale trade.
Mining output was dragged lower by a decline in the production of diamonds, iron ore and platinum group metals (PGMs).
Statistician-General Risenga Maluleke said all industries showed a slump in the fourth quarter amid record levels of load shedding.
Economic activity in the electricity, gas and water supply industry was hampered by lower levels of production and consumption of electricity, mainly due to load shedding and water.
“In terms of our industries in primary, tertiary and of course secondary, we can see that all of them went on a slump. As of the fourth quarter our economy contracted by 1.3% and year-on-year 0.9%,” Maluleke said.
Meanwhile, StatsSA said the economy grew for a second consecutive year in 2022, expanding by 2.0% between 2021 and 2022, from R4.50 trillion to R4.60 trillion, with the mining sector being the biggest drag on growth.
According to StatsSA, six industries have yet to recover to their pre-pandemic levels of production, with construction being in the worst shape and remaining 23.1% smaller than what it was before the pandemic.
StatsSA said although GDP reached an all-time high in 2022, the economy had only grown by 0.3% from the 2019 pre-pandemic reading of R4.58 trillion.
Anchor Capital investment analyst Casey Delport said this bout of weakness was unsurprising given the number of headwinds that weighed on the economy in the fourth quarter such as the Transnet strikes that disrupted exports, load shedding, high-interest rates, and elevated inflation.
Delport said growth in 2023 was expected to slow to below a meagre 1%, and thus simply not growing at an adequate rate to sustainably boost long-term employment prospects for South Africans.
“Overall, the domestic economy is facing a range of risks, in the form of continued high levels of load shedding and the deterioration in port and rail infrastructure,” Delport said.
“Furthermore, the slow implementation of structural reforms is lowering business confidence and deterring new investment.”
The worse-than-ever load shedding has been a major headwind for business and is expected to continue to weigh for the foreseeable future, affecting both businesses and consumer sentiment as well.
At the same time, consumers are also having to contend with higher interest rates and an increased cost of living, all of which speak to a challenging environment ahead.
FNB senior economist Thanda Sithole said the outlook was dire amid load shedding and slower global growth.
Sithole’s forecast was even worse than Delport’s, saying they expected the economy to soften to a meagre 0.4% this year before gradually recovering to 1.4% next year and 1.6% in 2025.
“The most significant threat to economic stability is the ongoing hard power shortages, which by our current forecast, have effectively pushed the economy into a two-quarter technical recession between 4Q22 and 1Q23,” Sithole said.
“Should intensified load shedding persist, surpassing what is currently envisaged in our baseline throughout the first half of 2023, a prolonged recession will be likely.
“Private sector fixed investment growth will be curtailed, threatening the job market recovery. Slowing global growth, especially from South Africa’s major trading partners, and logistical constraints could constrain export volumes, further depressing economic growth and government revenue.”
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