Global Courant 2023-04-19 16:33:05
Finance group Nedbank has published its Guide to the Economy for 2023, with a gloomy outlook for the country as the economy’s divestment continues to hurt its outlook.
The group said the outlook for 2023 “remains bleak”, noting that the ongoing electricity shortage will continue to hurt production and sales across all sectors
Nedbank economist Johannes Khosa also said the chances of the country slipping into a technical recession remain high, with the group’s base view that the economy recorded zero growth in the first quarter – and that the economy will remain weak for the rest of the year .
“Consumers are expected to be more cautious as high inflation and higher interest rates weigh on incomes, and concerns about job security are eroding confidence,” he said.
“Fixed investment is expected to increase, albeit at a slower pace, supported by renewable energy projects and public infrastructure spending. Net exports will continue to be a drag as exports shrink faster than imports.”
Overall, Khosa expects real GDP growth in South Africa to be around 0.2% for the full year – in line with current South African Reserve Bank projections. This is lower than the forecast of 0.7% at the time of the previous report.
Unfortunately for the country, the forecast carries significant downside risks, especially given the deepening electricity crisis and significant global headwinds.
This includes inflation, which surprised positively in both February and March, indicating continued pressure on the SARB’s Monetary Policy Committee to act.
“With inflation still above the target range of 3% to 6%, the MPC is likely to raise rates by another 25 basis points in May,” Khosa said. After that, he expects interest rates to remain unchanged before falling cumulatively by 100 basis points in 2024.
“With inflation likely to decline only slowly, the MPC is expected to remain aggressive. On top of sticky food prices, uncertainties around the price implications of load shedding and the surge in electricity rates, the rand is likely to remain vulnerable to further rate hikes in the US.
“While the outlook is exceptionally bleak, we forecast another 25 basis point rate hike in May, which will push the repo and prime lending rates to peaks of 8% and 11.50% respectively. The easing cycle is expected to begin in early 2024,” he said.
Experiencing pain when shedding
As has been the recurring thread of all domestic economic data and analyst and economist assessments, the shedding of the tax remains the main drag on the economy, with Khosa noting that disruptions have been “relentless” and disrupted activity across all sectors .
“Seven out of the 10 major sectors shrank during the quarter, with the main drag coming from lower value added in the financial sector, followed by trade, hospitality and accommodation. The added value of electricity and water also fell for the third consecutive quarter due to continued failures at Eskom’s power plants,” he said.
In addition to power shortages, export-oriented industries were hit by slower demand in major economies and lower global commodity prices. As a result, the manufacturing and mining industries shrank.
Personal services surprised positively despite tight household finances, with value added recovering after a decline in the third quarter. Construction, transportation and communications also grew, albeit at a slower pace.
On the spending side, the latest statistics are mixed, Khosa said, but they suggest the economy faced further setbacks in early 2023.
Again, continued tax shedding remained the main issue.
“Frustrations caused by power shortages continued to weigh on confidence,” said the economist.
As a result, the growth outlook for the remainder of the year has been revised significantly downwards. The SARB has revised its real GDP growth forecasts for 2023 from 0.3% in January and 1.1% in November last year to 0.2% in March.
National Treasury cut its forecast to a moderate 0.9% in February from 1.4% at the time of its Medium Term Budget Policy Statement (MTBPS) last October.
Read: Bad news for interest rates in South Africa
