The economy is taking strain from loadshedding and this is paving the way for a technical recession in South Africa, says Citadel Chief Economist Maarten Ackerman.
Ackerman was reacting to the gross domestic product (GDP) data released today by Statistics South Africa, indicating that the country’s GDP contracted by 1.3% in the final quarter of 2022, largely due to the economic knock-on effects of the country’s protracted energy crisis.
“Everything is indicating that the first quarter of 2023 will also be negative, because of the amount of loadshedding we’re seeing at this point in time, coupled with the logistical issues faced in our rails and ports infrastructure. This will give us two consecutive negative quarters which by definition is a technical recession,” says Ackerman.
SA GOING NOWHERE SLOWLY
GDP growth for the year 2022 came in at 2%, which was “not enough to address our structural issues”, says Ackerman. “A 2% growth rate does not mean much if you consider that it’s not out-running our population growth and we have been stuck in the low growth environment for the past couple of years.”
Ackerman says the growth figures announced today meant that South Africa was doing worse than it did prior to the COVID-19 pandemic. “We’re stuck at the economic level of 2018. That’s five years of going nowhere slowly which, again, speaks to the structural issues we’re facing on a daily basis in South Africa.”
HOUSEHOLD CONSUMPTION PROVIDES A GLIMMER IN THE DARK
“It’s encouraging to see that at least household consumption is remaining positive at 0.6%, even though we saw a decline in the previous quarter. It shows that consumers are still maintaining some spending despite struggling with lower take-home pay, low savings, high unemployment and rising interest rates,” says Ackerman, noting that it was interesting to see that consumers were still spending on restaurants, household equipment, communications and education, although it is likely that much of that spending was on credit.
STRONG FIXED CAPITAL FORMATION IS THE BEST NEWS OF THE DAY
“From all the numbers we’ve seen today, fixed capital formation is the most positive with a surprising 1.3% increase for the quarter (Q4 2022). This is now the fifth positive in a row, which is good news, because this number has been negative more often than it has been positive over the past couple of decades,” says Ackerman, who believes this trend could pave the way for more sustainable economic growth going forward.
SERVICE-BASED INDUSTRIES WERE THE STRONGEST GDP BOOST IN 2022
Looking at overall GDP figures for 2022, Ackerman said it was clear that it was “mostly service-based sectors that were contributing to economic growth”. Financial services were a strong service-based contributor to the economy, he said.
“Unfortunately, industries like mining, construction, electricity and manufacturing were all in the red – and that is really the strongest job creation side of the economy.”
Written by: Citadel Chief Economist and Advisory Partner, Maarten Ackerman