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• 2023-09-11 at 16:33 #419901
  Nat Quinn

  Keymaster

  South Africa’s economy is facing an incredibly tough third quarter as increased load shedding, rocketing petrol prices, frequent incidents of social unrest, and slowing global growth threaten to bring a storm of economic pain.

  The second quarter of the year yielded better-than-expected results, with GDP growth coming in at 0.6% quarter-on-quarter and 1.6% year-on-year.

  According to economists at the Bureau for Economic Research (BER), despite lingering domestic growth constraints, the South African economy proved resilient, particularly in manufacturing and finance, and definitely on the consumer spending side of the equation.

  However, while third-quarter data is also showing some “constructive” initial growth in key sectors, the BER warned that four major pain points are in play, which threatens the momentum built in Q2.

  Load shedding

  The most obvious factor working against South Africa’s economy is load shedding.

  Q2’s stronger performance was largely thanks to lower levels of load shedding during the winter months. While the country had expected load shedding to get worse – moving beyond stage 8 – in wither, the opposite happened.

  A combination of lower demand, less planned maintenance, stronger winds driving renewables and improved generation in colder conditions meant that load shedding could be reduced in Q2, this boosting productivity.

  These good times are gone, however. Load shedding in Q3 has so far only escalated, with September hit with extended stage 6 outages. According to the electricity ministry, this is due to a ramping up of planned maintenance – but outages and demand pressures are also to blame.

  Petrol price hike

  South Africans were hit with a massive fuel price hike in September – petrol went up by R1.70 per litre, while diesel skyrocketed by R2.80 per litre.

  According to the BER, there is more to come in October.

  “Last week’s further rise in global oil prices, with Brent crude breaching $90/bbl for the first time since November 2022, raises the risk of another hefty fuel price increase in October,” it said.

  “With the US dollar gaining momentum last week, the rand was under pressure, pushing up the rand price of oil even further.”

  The BER said that higher fuel costs not only eat into household disposable income but also have a broader inflationary impact. This means that headline CPI could temporarily bump up to around 5.5% y-o-y in September and October 2023, it said.

  Core inflation should remain on a downward trajectory – at least enough to keep interest rate hikes at bay, the group said.

  Social unrest

  Another economic pressure in Q3 is the number of incidents of social unrest.

  Disruptive local events so far during the quarter – including the N3 truck torchings in July and the week-long Western Cape taxi strike in August – have had an impact on various sectors, which is already filtering through the data.

  “Based on the Absa PMI data for July and August, this impacted supplier delivery times and probably weighed on manufacturing output,” the BER said.

  With the 2024 elections fast approaching, the risks of social unrest are only increasing.

  This is evident in the storm already brewing around proposed budget cuts from National Treasury where unions are waiting in the wings to push back through strike action.

  Treasury is reportedly looking at cutting a host of government programmes worth billions of rands. A reduction in social spending – while necessary to balance the books – is a hugely unpopular move, with risk experts warning of the consequences.

  Trading partners

  According to the BER, it’s not only local issues at play. Also lining up trouble for the South African economy is stalling growth for South Africa’s key trading partners, including the Eurozone (EZ) and the UK.

  Real industrial production in Germany fell, driven by weak output in the country’s capital, consumer and intermediate goods sectors. Moreover, the less volatile three-month average of manufacturing production was lower between May and July compared to the three months prior.

  “In addition, industrial output declined at a faster annual rate, suggesting that the German economy is likely to continue weighing on EZ real GDP growth in Q3,” the group said.

  SOURCE:Dark clouds gather for South Africa – BusinessTech
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