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South Africa Narrowly Escapes Recession In First Quarter

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According to data released on Tuesday, South Africa narrowly escaped a recession in the first quarter. However, economists and analysts cautioned that the country would face significant growth-limiting hurdles throughout the rest of the year.

With continuous power outages lasting up to 10 hours a day, the most industrialised country in Africa is experiencing its worst power crisis ever. This is partly because of problems with the ageing fleet of coal power plants owned by state utility Eskom.

In the first three months of 2023, the economy expanded by 0.4% from quarter to quarter and 0.2% from year to year, both growth rates matching those predicted by economists in a Reuters, British news agency, poll.

Arthur Karas, senior portfolio manager at Old Mutual Invest, remarked, “It doesn’t matter. If you speak to anybody who’s running a business in South Africa, they’ll tell you things are extremely difficult.”

Eight of the ten industries Stats SA tracked growth in the first quarter, with manufacturing and the financial, real estate and business services sectors contributing most positively with 1.5% and 0.6% growth, respectively.

With a 12.3% shrinkage, agriculture, forestry, and fishing were the main inhibitors of growth.

Risenga Maluleke, the general statistician, noted that the manufacturing of food and beverages had succeeded exceptionally well, in part because it required less electricity than other manufacturing categories.

Investing in renewable energy and in precautions against power outages, according to analysts and economists, has helped firms to continue operating. Additionally, corporations have mostly avoided layoffs thus far.

But they said that they anticipate a slowdown in growth in the second quarter.

Kevin Lings, chief economist at asset manager Stanlib, forecasts negative GDP growth estimates in the second and third quarters. “It’s just giving us a bit of a cushion to the downside,” he said. “I think (companies) are treading water … They’re not making big decisions,” he added.

Negative growth in the first quarter of this year, following a contraction in the fourth quarter of 2022, would have plunged South Africa into a technical recession, which is often defined as a decline in gross domestic product for two consecutive quarters.

According to the central bank, the economy will expand by 0.3% in 2023, with power outages impacting all types of firms. Eskom has issued a warning that the upcoming southern hemisphere winter could bring on worsening scheduled electrical interruptions.

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