SA’s economic outlook weakens after a series of knocks

SOUTH Africa’s economic outlook has weakened on the back of protracted rotational power cuts, expected high interest rates and disrupted industrial activity due to floods in KwaZulu-Natal.

This comes as power utility Eskom yesterday warned that the national electricity grid remained constrained, with an elevated risk of load shedding over the winter period, particularly during the morning and evening peaks.

Eskom has implemented load shedding for 32 days from January 1 to May 10 this year due to low plant availability.

This is six days more than the 26 days of load shedding during the same period last year, with the grid sitting at more than 15 000 megawatts of total unplanned outages.

“The onset of winter has seen increased demand and this will lead to capacity constraints throughout this period, particularly during the evening and morning peaks,” said Eskom chief operations officer Jan Oberholzer.

“Unfortunately, this would generally require the implementation of load shedding during the evening peaks.”

The South African economy is expected to grow by 2percent in 2022, revised up from 1.7 percent, due to a combination of factors, including stronger growth in 2021 and higher commodity export prices.

However, economists said the rising global inflation driven by elevated commodity prices such as oil would drive inflation to multi-year highs.

Brent crude prices jumped 5 percent to $106 (R1 710) per barrel yesterday as supply side challenges re-emerged after the EU started working on gaining support to ban Russian oil, while major producers warned that they may not be able to meet demand without further investment.

South Africa’s headline inflation rate remains at an elevated 5.9 percent, the top end of the target band of the South African Reserve Bank’s (SARB) 3 to 6 percent target range, and could even rise above that.

Investec chief economist Annabel Bishop said the drivers of inflation globally and domestically remained the supply side and base effects, with commodity prices, particularly oil and food, key in driving up inflation.

“Unexpected shocks to the system have weakened economic growth expectations globally and so locally, including the Russian/Ukraine war and associated increased sanctions, high commodity prices, Chinese lockdowns and the very hawkish US rate hike trajectory,” Bishop said.

“Domestically, insufficient capacity to export commodities are limiting South Africa’s gains from the commodities boom, while the KZN floods damaged export capacity too.

“Load shedding, while not unexpected, has weakened the outlook for South Africa, along with higher interest rates.”

It is likely that the SARB will adopt a more hawkish monetary policy position next week and analysts have already penned a 50 basis points hike.

FNB senior agricultural economist Paul Makube said high inflation and rising interest rates would inevitably push food inflation to remain above 6 percent in the near term.

“Indications are that the interest rates hikes will be aggressive going forward, following a second increase of 25 basis points in March which brought the repurchase rate to 4.25 percent,” Makube said.

“Farmers, therefore, face higher debt serving costs in a record high input cost environment,” he said.