Citibank ‘optimistic’
OUTLOOK: PRIVATE SECTOR INVOLVEMENT IN POWER GENERATION GIVES HOPE
But Transnet needs urgent attention amid fears it is becoming the next Eskom.
The South African economy may be able to avert a technical recession in the third quarter this year, mainly because the mining and manufacturing sectors are showing some resilience.
Citibank economist Gina Schoeman, speaking during a virtual media session on the 2023 economic outlook for SA, says despite high levels of load shedding, production in these sectors remained in positive territory.
The country is only marginally escaping negative growth in the third quarter.
Schoeman is “optimistically cautious” about the country’s growth expectations for the next two years. The investment bank forecasts gross domestic product (GDP) growth of 1.7% this year, 1.4% next year (mainly because of global recessionary conditions) and 1.9% in 2024.
These figures could be conservative if inroads into the electricity supply situation are made through self-generation.
“We can’t really call our baseline view of GDP growth of less than two percent bullish, but we can give more weight to a slightly better upside scenario,” she says.
For the first time ever there is a plan for Eskom, and the private sector has never been as involved as it is now, she adds.
Schoeman is hopeful about private sector involvement in energy generation but remains worried about government involvement when it comes to the process of selling self-generation back into the electricity grid.
Inflation and interest rates
The factors that keep the South African Reserve Bank hawkish about interest rates are inflation and the local currency’s performance against the US dollar.
Schoeman expects headline inflation to remain “very sticky” and above seven percent until next year, dropping to 5.5% during the year, and even further to 4.5% at the end of 2023.
Despite this, she believes the Reserve Bank will remain hawkish.
If the rand is weaker than expected against the dollar, it may compromise the downturn in the inflation rate.
“CPI growth [food and fuel] will not come down as quickly as expected, and the [longer] that takes the more expectations of higher inflation remain elevated.” Thus, a more hawkish approach may result in a 75-basis point interest rate hike this week, and another 25 basis points at the start of next year.
Revenue and expenditure
National Treasury is given credit for a job done well in terms of how it has been managing the country’s purse, given the socioeconomic and political situation and expenditure demands.
Schoeman echoes concerns about the lack of adjustments in the medium-term budget policy statement for expenditure risks.
The three main items of concern are the wage bill, Eskom’s debt, and the continuation of the social distress grant and it being converted into a basic income grant. The social distress grant rolling into 2024 adds around R35 billion.
Finance Minister Enoch Godongwana announced that government will take over a portion of Eskom’s R400 billion debt.
Citibank expects President Cyril Ramaphosa to get the thumbs-up at the ANC elective conference in December.
Transnet requires urgent attention because of growing fears that it is becoming the next Eskom.
We can’t call our baseline view of GDP growth of less than 2% bullish