The impact of load shedding has forced Absa Bank to revise its third quarter gross domestic product (GDP) growth forecast that it made only in July to a negative 0.4%, which will put South Africa into a technical recession after the second quarter’s negative 0.7% print.
This was according to Peter Worthington, head of the bank’s South Africa macroeconomic research division, who spoke in an online “roundtable” presentation yesterday.
Fortunately, he expected fourth quarter GDP to grow by 0.7%, recouping only half the lost output of the previous two quarters, but which should leave their GDP growth forecast for 2022 at 1.1%, improving slightly to an 1.8% average in 2024 to 2025.
The bank’s 2022 GDP forecast is quite a bit lower than the National Treasury’s GDP forecast of 1.9% announced during last week’s Medium-Term Budget Policy statement – Treasury had also revised down its GDP expectations from a 2.1% forecast it made in February. For additional comparison, Nedbank’s GDP growth forecast stands at 1.8% for 2022.
Worthington said both global and local factors were behind forecast, including higher interest rates that had dampened consumption spending, weak sentiment that was at its lowest levels since the end of apartheid, not counting 2020 during the pandemic, port, rail and infrastructure efficiency issues, and the fact that load shedding through the third quarter was the worst on record.
He said they expect load shedding would continue to hurt the economy until 2024, even into the second half of 2024, when new generation capacity was expected to come on stream and efforts to stabilise the grid and generation capacity starts bearing fruit.
Miyelani Maluleke, an economist at Absa corporate and investment banking, said it was likely inflation had peaked in South Africa and they expect headline inflation to return to within the SA Reserve Bank’s target range of between 3% to 6% in mid-2023, and end 2023 at 4.6%
He said the two primary drivers of local headline inflation this year, food and fuel price increases, were decelerating. International grain prices were trending lower. He expected local food price inflation to peak at about 12% this month, and recede to about 6.2% next year.
He warned there were risks to their outlook, such as the global geopolitical environment, such as Russia’s halting of its participation in a Ukrainian grain agreement. On fuel prices, there remained scope for a disinflationary effect to the economy.
He said, however, that broader inflation price increases in other areas of the economy were gathering pace. Further weakening of the rand/dollar exchange rate also remained a risk.
Also, commodity prices had begun to decline and were expected to decline further next year in line with a slower global economy.
Absa fixed income and currency strategist Mike Keenan said the rand was trading in an environment of tightening monetary policy, which with geopolitical tensions, was driving global investors to the safety of the dollar and away from investing in emerging market assets.
He said, however, the rand was also under-performing some of its peers among resource producing emerging market countries, an indication that local risks had also weakened the exchange rate. These risks included the impact of load shedding on the local economy and the ANC’s elective conference next month.
Worthington said it was difficult to predict the outcome of the conference because even if President Cyril Ramaphosa was re-elected, he would need supporters elected in the ANC’s top six and in its national executive committee to be supportive of him, which, given some of the tensions in the party, was far from evident at this stage.
“We won’t know until all the dust has settled on the conference floor,” said Worthington.
BUSINESS REPORT