Eskom yesterday started implementing week-long stage 2 load shedding until Saturday night, after three weeks of stable energy supply since August 17 as unplanned breakdowns led to a shortage of generation capacity. Picture:Nokuthula Mbatha (ANA)
South Africa’s economy could face a technical recession in the next quarter if the ongoing energy crisis intensifies and after Statistics South Africa (StatsSA) revealed gross domestic product (GDP) contracted 0.7 percent in the second quarter.
This as Eskom has reintroduced rotational power cuts on the back of stumbling growth.
Eskom yesterday started implementing week-long stage 2 load shedding until Saturday night, after three weeks of stable energy supply since August 17 as unplanned breakdowns led to a shortage of generation capacity.
The struggling power utility has already warned that it could implement up to stage 4 load shedding throughout this summer season after having already implemented record levels of power cuts this year.
Energy insecurity and the devastating floods in KwaZulu-Natal (KZN) were cited as the major reasons for the economy to decline back to pre-pandemic levels in the three months to June.
Data from StatsSA yesterday showed that the GDP contracted 0.7 percent in the second quarter from a downwardly revised 1.7 percent in the first quarter, damaging the recovery enjoyed in the previous two consecutive quarters of positive growth.
Statistician-General Risenga Maluleke said seven out of 10 industries contracted in the second quarter, including trade, catering and accommodation.
Maluleke said the flooding had a negative impact on a number of industries, most notably manufacturing while economic activity in the electricity, gas and water supply industry was hampered mainly by load shedding due to lack of generation capacity.
“The damage to factories and plants, and disruptions to logistics and supply chains, pulled national manufacturing output down by 5.9 percent,” Maluleke said.
“The recovery was short lived, with the 0.7 percent decline in the second quarter dragging GDP to R1.142 trillion, back below the fourth quarter of 2019 pre-pandemic level of R1 148 billion.
On a yearly basis, StatsSA said GDP grew by a mere 0.2 percent unadjusted in the second quarter from a downwardly revised 2.7 percent.
This subdued growth figures are going to occupy the government’s plans as the Cabinet Lekgotla meeting on economic growth, infrastructure development, immigration, and fiscal matters ended yesterday.
Citadel Wealth Management chief economist Maarten Ackerman warned that if the economic growth trend was repeated in the third quarter, it would mean that the country has entered a “technical recession”.
“Not only is the local economy currently negatively impacted by global events, but local issues, such as record levels of load shedding and recent floods in KZN have clearly had a detrimental impact on growth,” Ackerman said.
“In rand billions, the South African economy remains at 2018 levels which speaks to the structural issues holding back our growth. While the economy is stagnating, the population keeps on growing which adds to the unemployment and social issues we are dealing with.”
Data also showed that expenditure on GDP fell by 0.7 percent in the second quarter after expanding by 1.8 percent in the first.
FNB senior economist Thanda Sithole said they expected some of the headwinds that affected economic activity in the second quarter to have been sustained into the second half of the year.
“Rising interest rates and higher living costs are likely to have a dampening impact on domestic spending resilience,” Sithole said.
“The slowing growth from South Africa’s major trading partners poses a risk to our forecast. However, domestic economic growth could remain supported if reforms to address the energy crisis and other network industries’ infrastructure inefficiencies are executed timeously.”
Economists now forecast that South Africa could expect to see economic growth of between 1.8 percent and 1.9 percent year-on-year this year, though risks abound
Nedbank economist Johannes Khosa said growth in consumer spending will probably moderate but remain relatively resilient, helping to buoy services through to the end of the year.
“The economy should return to growth in the second half of the year as the impact of the floods fade and the intensity of load shedding hopefully eases,” Khosa said.
“Domestic spending will continue to carry the economy. Household incomes are likely to be propped up by the recovery in the labour market, driven predominantly by the rebound in the labour-intensive travel, tourism, hospitality, and food services industries.”
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