Early economic data for January give a glimmer of hope that South Africa can avoid a technical recession after all, say economists at the Bureau for Economic Research (BER).
The country had a busy week for sector data, with January’s mining, manufacturing, retail and wholesale data set to be released this week.
According to the BER, year-on-year declines in most sectors were as expected – given the severity of the load shedding at the start of 2023 versus 2022 – but there was month-on-month growth in some sectors, which provided a “very welcome surprise.
“Initially, this confirms our view that the economy can avoid a technical recession after last quarter’s downturn,” the BER said.
This is remarkable as the positive month-on-month data follows shocking Q4 2022 GDP numbers released last week, which reflected a 1.3% contraction in the economy over the period – three times the much as the market expected.
The quarter’s decline was supported by a non-stop load shedding, which swept through the economy for nearly two days during the last three months of the year.
This sounded the alarm for GDP forecasts for the first quarter of 2023, as the country has experienced tax cuts every day of the year so far – 76 days and still – often at much higher stages than in the fourth quarter.
As a result, year-over-year data shows expected production declines, with some faring much worse than others. However, the month-on-month figures are much more hopeful.
According to Stats SA, mining production fell 1.9% yoy in January, after a 3.6% decline in the previous month. However, on a seasonally adjusted basis, mining production rose 4.4% mom in January, driven by a 23.7% rise in iron ore production.
Despite the monthly increase in production, recent price declines caused mineral sales at current prices to fall 0.6% mom in January. On an annual basis, however, sales were still up 6.8%.
Manufacturing production fell 3.7% yoy in January. Encouragingly, however, the Absa PMI for January suggested a surprising pick-up in manufacturing activity.
“We can now confirm that this has translated into actual production growth. Industrial production rose 1.1% mom, beating expectations and following a 0.5% increase in the previous month,” the BER said.
Looking at internal trade data, wholesale sales at constant prices fell 3.6% yoy in January. This was the fourth consecutive annual decline.
But again, the month-over-month picture is more positive as wholesale sales rose 0.4% mom in January.
And finally, while retail sales at constant prices fell slightly 0.8% yoy in January, real retail sales rose 1.5% month-on-month in January, following a 0.5% decline in December.
Not out of the woods yet
While the positive month-on-month data raises some hope that the South African economy may be able to avoid a technical recession, the numbers are no cause for celebration.
By all accounts, GDP numbers for the first quarter of the year will be extremely tight – and there are still two months of data (February and March) to consider.
The slight hope also doesn’t negate the devastating impact of the divestment on the economy. That the country sees growth at all despite power outages that leave households and businesses in the dark for up to 12 hours a day is in itself a surprise.
Even if South Africa avoids a technical recession in the first quarter, it’s on the wall.
Every major bank and financial group that has released its results and forecasts for the year has pointed to the impact of the tax cut on the economy, severely lowering growth forecasts for 2023.
While none have predicted an outright recession, all projections are below 1% – the lowest being just 0.1%.
FNB lowered its growth forecast for 2023 to 0.4%. Absa said growth would be below 1%, while Nedbank took a tougher stance, putting the country’s growth expectations on the brink of recession at just 0.1%.
This dancing on the brink of recession was echoed by the South African Reserve Bank, which cut its growth forecast for the country to just 0.3% at its Monetary Policy Committee (MPC) meeting in January.
At the time, the bank said its 0.3% forecast was based on South Africa experiencing 200 days of outages in 2023. the 0.3% looks shaky at best.
“We know that electricity shortages have increased; we expect to suffer 250 days this year from 157 days last year and 48 days in 2021,” he said.
Read: South Africa has reached a new low – and it could be worse: Reserve Bank