economic growth Blackouts cast doubt on brighter IMF view
Brighter IMF view
While SA’s outlook was revised higher, dangers to its prospects have intensified even more since the beginning of the year as a result of Eskom’s rolling blackouts
Economics CorrespondentThe IMF has upwardly revised its global and SA growth prospects, stating that the recent reopening of China’s economy has paved the way for a faster-than-expected recovery.
China, SA’s biggest trading partner, has been rapidly rolling back its stringent Covid lockdown restrictions, taking the sting out of global recessionary risks and brightening the mood for SA exporters of everything from coal to manganese.
But the SA economy could miss out on China’s reopening of borders, because daily load-shedding forces some factories to cut back on output, while Transnet struggles to keep all freight trains running.
Analysts say the growth outlook for SA was probably "largely fixed" before January proved to be the worst month of rotational power outages the country has yet experienced.
In its January world economic outlook update released on Tuesday, the Washington-based institution said that even though global growth is projected to fall from an estimated 3.4% in 2022 to 2.9% in 2023, the forecast for this year is 0.2 percentage points higher than predicted in October 2022.
For Sub-Saharan Africa, growth is projected to remain moderate at 3.8% in 2023 following the prolonged fallout from the Covid pandemic.
The fund said the region’s upward revision by 0.1 percentage point for 2023 reflects Nigeria’s rising growth due to measures to address insecurity issues in the oil sector. But in SA weaker external demand, power outages and structural constraints will continue to hinder the country’s growth projections and, by extension, continue to hinder economic growth in Sub-Saharan Africa.
"After a Covid reopening rebound in 2022 — also revised higher to 2.6% from October’s 2.1% — projected growth [in SA] more than halves in 2023 to 1.2%, up from October’s 1.1%," the IMF said.
Chief economist Pierre-Olivier Gourinchas said China’s sudden reopening paves the way for a rapid rebound in activity, which is likely to lead to a 5.2% rebound in growth there.
"And global financial conditions have improved as inflation pressures started to abate. This, and a weakening of the US dollar from its November high, provided some modest relief to emerging and developing countries," Gourinchas said.
But while SA’s outlook was revised higher, the dangers to its prospects have intensified since the beginning of the year as a result of Eskom’s rolling blackouts and the recent announcement of permanent load-shedding for the next two years.
President Cyril Ramaphosa has recommended that a state of disaster be declared over the country’s energy crisis.
Eskom has battled to get the additional funding it needs to purchase diesel to run its open-cycle gas turbines, which add emergency electricity supply to the grid to reduce load-shedding. The lack of reliable power supply has been consistently cited as one of the major risks for the economy.
Investec chief economist Annabel Bishop said the IMF has not accounted for the higher stages of load-shedding recently announced by Eskom for this year and next in its forecast.
"The economic consensus for SA is likely to fall over February," Bishop said.
"For SA’s 2023 growth outcome, much will depend on the supply of diesel Eskom can access, along with the speed of new energy build", and the removal of regulations.
Bishop said that if SA averages stage 4 load-shedding for most of this year, Investec models show a likely GDP growth rate of 0.7% for 2023, "particularly with a pickup in global growth as opposed to a marked global recession".
Absa chief economist Peter Worthington said the IMF’s growth outlook for SA was "likely largely fixed" before January proved to be the worst month of load-shedding.
"Therefore, we believe that risks to their GDP growth forecast and ours for 2023 lie on the downside.
"A more up-to-date forecast by the SA Reserve Bank last week pencilled in GDP growth of 0.3% for this year," Worthington said.