Following an expected contraction of 0.4% in gross domestic product (GDP) in the fourth quarter of 2022 – which Statistics South Africa (StatsSA) is due to announce on Tuesday, March 7 – financial services firm Nedbank forecasts another 0.4% quarter-on-quarter contraction for the first quarter of this year.

The bank explains that economic activity has been struck down by intense loadshedding, with the fourth quarter of 2022 having experienced only two days without loadshedding.

Additionally, the hours a day without electricity nationally increased, with Stages 3 to 6 loadshedding having persisted for 51% of the time.

All industries and consumers were exposed to prolonged periods of loadshedding at Stage 4 and five days of Stage 6, with a total eye-watering 6 021 GWh of electricity having been shed in the fourth quarter.

Nedbank says these “paralysing disruptions” have hurt output and sales in many industries, particularly mining and manufacturing, and led to increased production costs.

The bank says the economy likely grew by 2.3% in 2022, as a whole; however, the bank forecasts a dip in growth to 0.4% for 2023. Nedbank previously expected a growth rate of 0.7% for this year.

The economy has endured loadshedding every day in the first quarter of this year so far, with 79% of the time spent at stages of Stage 3 to 6.

Other downward pressure on GDP includes sticky inflation, high food prices and high interest rates.

Nedbank’s base assumption is that power utility Eskom, at least, manages to restrict loadshedding to Stage 3 and 4 from the second quarter onwards. While this will still depress output and sales, greater predictability and the ongoing adaptation in the private sector should facilitate a weak recovery over the last three quarters of the year.

The bank expects agriculture; transport and communications; finance, real estate and business services; and general government to be the main drivers of positive growth this year, with agriculture poised to grow by 10.8% and transport and communications by 3.9%, followed by finance, real estate and business services by 2.8%, and general government by 1%.

On the other hand, mining and manufacturing, along with electricity, gas and water, are expected to contract by 4.7%, 4.5% and 7%, respectively.

Nedbank says greater predictability around loadshedding will allow industries to adjust their operations accordingly, while adapting to off-grid measures of power generation; however, persistent and intensive loadshedding will continue to hurt output and drive up costs.

Unfortunately, this year will likely result in businesses restructuring and therefore job losses as a result.

On top of loadshedding, other structural constraints such as logistical bottlenecks also remain, as well as criminality and community unrest, which impact negatively on the mining sector in particular.

Nedbank says a slowing economy globally will also translate into weaker demand for exports, while commodity prices are receding from the Ukraine war-induced highs.

GDP OUTCOMES

Nedbank cites StatsSA’s monthly production and sales figures for the fourth quarter, noting that output fell by 3.4% and 1.6% quarter-on-quarter in mining and manufacturing, respectively.

The physical volume of electricity production dropped by 1.9% quarter-on-quarter, while a prolonged slump in construction is evident in another 4.9% quarter-on-quarter decline in the real value of buildings completed.

Performances in the tertiary sector, which is the least energy intensive, were mixed. Wholesale sales declined by 0.2% quarter-on-quarter but retail sales rose by 0.3%, boosted by Black Friday specials.

Nedbank says that, despite sharply higher interest rates in the fourth quarter of last year, real income from motor trade rose by a solid 2.3% quarter-on-quarter.

Real income from accommodation also improved throughout the year, rising by 1.4% in the fourth quarter, compared with the prior quarter, as international and local tourism continued to normalise from the Covid-19 pandemic.

For example, the number of tourists entering South Africa increased by 180% in December 2022, compared with December 2021.

Moreover, real income from food services declined by 0.9% quarter-on-quarter in the quarter under review, since restaurants, cafes and other food services are extremely vulnerable to power outages.

Additionally, Nedbank says, high and rising food inflation is also weighing on consumers’ already stretched wallets.

The bank reports land transport services also had a mixed performance in the fourth quarter, with freight volumes having decreased by 1.2% quarter-on-quarter, but with passenger rail volumes increasing by 10.4% quarter-on-quarter.

In terms of the finance, real estate and business services sector, Nedbank says it is difficult to assess this sector’s performance accurately, however, the bank expects the banking sector to have reported strong transactional volumes and for growth in loans advanced to have remained healthy.

Nedbank concludes that despite the plans put in place by government to address some of the country’s inefficiencies, it is unlikely to yield results or bring meaningful relief this year.