SA’s economic contraction exceeds all estimates thanks to power cuts

By Prinesha Naidoo

South Africa’s economy shrank more than expected in the fourth quarter, when the state-owned power utility intensified rolling blackouts that continue to put a dampener on output.

Gross domestic product contracted 1.3% in the three months through December, compared with upwardly revised growth of 1.8% in the previous quarter, Statistics South Africa said Tuesday in a report released in the capital, Pretoria. That’s the biggest contraction since the third quarter of 2021, when deadly riots, looting and arson disrupted supply chains, industrial output and demand for manufactured goods. 

The median of 12 economists’ estimates in a Bloomberg survey was for a 0.4% slump. The rand extended a decline, weakening 0.5% to 18.3378 per dollar by 11:51 a.m. in Johannesburg, while yields on benchmark 10-year government bonds retreated from a session high to trade little changed at 10.68% and South Africa’s main stock index erased most of a modest gain.

Eskom Holdings SOC Ltd. subjected the country to power cuts, known locally as loadshedding, on all but three days in the fourth quarter. The company, which produces almost all of South Africa’s electricity, has struggled to meet demand since 2008, and has imposed severe outages every day this year to protect the grid from collapse.

A worker uses a torch inside a hardware store during loadshedding, in Johannesburg, South Africa.

Sustained blackouts are seen as the most significant risk to economic growth. 

Economists in a separate Bloomberg survey predict a contraction in gross domestic product in the three months through March, meaning the economy may already be in recession.

The electricity crisis is costing the country as much as 899 million rand ($49 million) per day and will shave 2 percentage points off output growth in 2023, according to South African Reserve Bank estimates. It sees the economy expanding by 0.3% this year, well below the National Treasury’s growth estimate of 0.9%.

Economic growth slowed to 2% in 2022, from 4.9% a year earlier, Statistics South Africa data showed. 

Electricity Minister

President Cyril Ramaphosa named Kgosientsho Ramokgopa as the minister responsible for overseeing the government’s response to the energy crisis in a cabinet revamp late Monday. 

The blackouts are likely to continue for at least two more years as Eskom overhauls its electricity-generating fleet. It has repeatedly said an additional 4,000 to 6,000 megawatts of electricity generating capacity are needed to end outages.

The blackouts weighed on fixed investment spending in the final quarter of 2022, with private sector companies wary to commit large sums of money to domestic projects. Gross fixed capital formation, a measure of investment, rose 1.3%. 

Household consumption expenditure, which accounts for about two-thirds of GDP, grew 0.9% in the fourth quarter. Consumer spending is likely to be affected by rising food and fuel costs, loadshedding price pressures and interest rates that have returned to pre-virus levels.

Overall GDP expanded 0.9% year-on-year in three months through December, Statistics South Africa said.

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-With assistance from Simbarashe Gumbo, Robert Brand and John Viljoen.

© 2023 Bloomberg L.P.

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