It’s official, Eskom flipped switch on SA economy to recession

By Prinesha Naidoo and Amogelang Mbatha

(Bloomberg) – South Africa’s economy slumped into a second recession in consecutive years as power cuts weighed on output and business confidence dropped.

Gross domestic product shrank an annualised 1.4% in the last quarter of 2019, compared with a revised 0.8% decline in the three months through September, Statistics South Africa said on Tuesday in Pretoria. The median estimate of 12 economists in a Bloomberg survey was for a 0.2% drop in output. The economy contracted 0.5% from a year earlier, the first time in almost four years that the economy has shrunk from the same period a year earlier.

Key insights:

  • The contraction means Africa’s most-industrialised economy hit a second recession since President Cyril Ramaphosa came to power at the start of 2018. For the full year, economic growth was 0.2%, the lowest since the global financial crisis. The National Treasury forecasts expansion will be less than 1% in 2020.
  • State power utility Eskom implemented the deepest electricity cuts yet in December, dragging down factory output. Business confidence that’s near a three-decade low continues to weigh on fixed investment spending as private-sector companies are wary to commit large sums of money to projects. Gross fixed capital formation decreased by an annualised 10% in the quarter.
  • The continued lack of growth will weigh on the government’s revenue collection and efforts to tame debt and narrow the budget deficit. It will also make it even more difficult to lower an unemployment rate that’s close to 30% and that’s seen as one of the biggest obstacles to reducing poverty in one of the world’s most unequal nations.
  • Credit ratings companies have been flagging deteriorating debt metrics due to low GDP growth and high budget deficits as a key risk. Tuesday’s data increases the risk that South Africa will lose its last remaining investment-grade assessment, from Moody’s Investors Service.
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