The South African Reserve Bank (Sarb) slashed the country’s growth forecast by half for the next two years last week,, highlighting the dire impact the worsening power supply crisis is anticipated to have on the economy.
Delivering the first Monetary Policy Committee (MPC) statement of the year, Sarb Governor Lesetja Kganyago said the central bank now projects that South Africa’s 2023 gross domestic product (GDP) will grow by a meagre 0,3 percent, due to “extensive load shedding” as well as other logistical constraints.
The bank’s previous estimates (in November) were for 0,6 percent GDP growth this year and 1,4 percent in 2024. Its forecast GDP growth for 2024 is now just 0,7 percent, and it has cut its growth forecast for 2025 from 1,5 percent to 1 percent.
These significant downward revisions come as load shedding has escalated to unprecedented levels, with multiple power cuts taking place daily for several weeks now.
The Sarb also forecasts no growth for the fourth quarter of 2022, despite the economy growing 1,6 percent in the prior quarter. Official GDP figures for the last quarter of 2022 and the year as a whole are yet to be released, but the bank estimates that 2022’s growth will come in at 2,5 percent.
“The forecast takes into account ongoing high levels of load shedding, and more modest household spending and investment growth than previously,” Kganyago said.
The Sarb hiked the repo rate by 25 basis points to 7,25 percent, in its eighth increase since the MPC commenced raising rates to curb rampant inflation, effectively pushing the prime lending rate to 10,75 percent.
During his repo rate announcement, Kganyago added that the GDP forecasts take increased load shedding per year, relative to what was factored in at the time of the previous MPC meeting in November, into account.
In 2023, 250 days of load shedding have been pencilled in (up from 100 days).
For 2024, the previous forecast of 40 days has been increased to 150. And in 2025, load shedding is likely to take place on 100 days, according to the bank.
This week, South Africa was thrust into permanent rolling blackouts, which state power utility Eskom said will last for up to two years, in order to give it room to overhaul its decaying infrastructure. — Moneyweb.
