South Africa’s economy narrowly avoids a recession as energy crisis persists

South Africa’s fragile economy avoided a technical recession in the first three months of 2023 — a period marked by unrelenting Eskom blackouts.

The economy grew by 0.4% in the first quarter of 2023 after contracting by a revised 1.1% in the fourth quarter of 2022, according to data released on Tuesday by Statistics South Africa. 

Had the economy contracted in the first quarter, it would have been considered to be in a technical recession, which refers to two consecutive quarters of a contraction in overall economic activity. 

The growth of the economy during the first quarter was largely expected, with most economists pencilling in growth of between 0.2% and 0.4%. The size of South Africa’s economy was R4.61-trillion in the first quarter, which is bigger than the last quarter of 2019, before the Covid pandemic struck.  

Arguably 0.4% is barely real growth and nothing to celebrate as it underscores how rolling blackouts are undermining the economy and its growth potential. After all, between January and March this year, the economy enjoyed only one day without blackouts. 

Eight of the 10 sectors tracked by Statistics South Africa recorded growth in the first quarter of 2023 despite intense power cuts. 

The sectors are mining and quarrying (increased by 0.9%); manufacturing (increased by 1.5%); construction (increased by 1.1%); trade, catering and accommodation (increased by 0.7%); transport, storage and communication (increased by 1.1%); finance, real estate and business services (increased by 0.6%); general government services (increased by 0.2%): the personal services industry (increased by 0.8%); and household final consumption expenditure (increased by 0.4%). The latter, which points to spending by consumers/households, remains resilient despite a cost of living crisis made worse by interest rates that increased during the first quarter and high inflation. 

The agriculture sector remains a pressure point in the economy, which fell by a massive 12.3% in the first quarter, from a revised 2.4% decline in the fourth quarter of 2022. Statistics South Africa said the fall in output reflected weakness in field crops and horticultural products. It also reflects the effects of lower electricity generation. Another sector that saw a decline in output during the first quarter was electricity, gas and water, falling by 1%. 

The big worry is the outlook for the economy, which remains bleak. 

Razia Khan, the chief economist at Standard Chartered Bank for Africa and the Middle East, said the economy’s performance during the first quarter “points to some resilience in the economy”. But there is a big proviso to this. “The important question remains. Is it [the growth] good enough? While the print may help to lift near-term sentiment, [the] big picture, it is still not good enough.”

Since the first quarter of 2023, the electricity situation has intensified, with the country being mostly in stage six blackouts. The economy’s performance during the second quarter (between April and June) so far looks shaky; manufacturing activity contracted in May, and the take-home pay of workers declined in April. 

Severe power cuts, tight fiscal and monetary policy (possibly more interest rate increases), and a weak rand against major currencies after the US accused South Africa of supplying weapons to Russia, all mean that the economy is likely to merely stagnate this year.

Read more in Daily Maverick: Lady R in South Africa

Said Capital Economics in a note to clients: “An end to the energy crisis is nowhere in sight. And there are growing fears that power cuts are adding to price pressures which is likely to prompt the central bank to keep policy tight for longer. Austerity will remain a headwind and external demand will be weak over the coming quarters.” DM