Despite the pain of load shedding, South Africa’s GDP for Q2 is expected to see growth.

Bank of America (BofA) Global Research said that the moderating power cuts in June compared to April and May should help boost economic activity.

In addition, mining and manufacturing data for Q2 showed better-than-expected growth in Q2, which should also support GDP figures.

However, there will be some pressure on the economy, with demand-side data showing strain.

Retail and wholesale trade sales contracted, hurting GDP growth, the group said, while private sector credit growth also cooled, and the TransUnion Consumer Credit Index was also at its weakest level since inception.

“Overall, we expect a 2Q GDP print of 0.6% quarter on quarter (qoq), and 1.2% year on year (yoy). In 1Q23, South Africa avoided a recession, with 0.4% qoq growth, after a contraction of -1.1% in 4Q22.”

“We assume no contraction in the coming quarters, but rather subdued qoq positive growth.”

Overall success

However, BofA admitted that the 2023 outlook remains weak, with growth of only 0.5% forecast compared to 1.9% achieved in 2022.

The group expects growth to increase to 1.5% in 2024 due to the reduction in power cuts compared to 2023 and the further use of alternative energy sources – like solar and generators.

“In our view, consumer relief is likely in 2024 as the central bank policy rate peaks. We expect a cutting cycle from 1Q24 resulting in 75bp worth of reductions in 2024,” BofA said.

These sentiments on South Africa’s economic prospects for 2023 are shared by economists at Absa, who expect real GDP growth of 0.7% in 2023 and 1.6% in 2024.

“Despite the sharp escalation in load shedding, economic activity in H1 23 was healthier than we expected. Electricity supply will continue to be a growth risk, but we believe that ongoing efforts in private generation will make the economy more resilient over time,” Absa said.

In addition, Absa said that headline inflation is likely to ease further, which should lead to the South African Reserve Bank cutting rates in March next year.

However, Absa’s economists said that there are still several risks to the economy, such as Eskom’s unreliable fleet.

“Until Eskom can return some of its generating units that are on long-term maintenance, bouts of load shedding may continue in the near term,” Absa said.

In addition, rail issues and water supply problems have seen business confidence drop – with the latest RMB/BER Business Confidence Index (BCI) dropping from 36 in Q1 2023 to 27 in Q2 2023, meaning only one in four respondents are happy with the overall business conditions.

“Without a sustained improvement in business confidence, a broader recovery in private sector investment spending outside energy projects will be slow, in our view. Given the low business confidence, we believe private sector investment spending will return to pre-pandemic levels only in Q2 25,” Absa said.

“A broader investment cycle remains unlikely given the weak business confidence, and we see this continuing to constrain growth prospects.”

---

Read: Massive shake-up for shopping malls in South Africa as Spar, Pick n Pay and Shoprite end exclusivity agreements