Big power cuts crash growth outlook

Near-term growth prospects have slumped due to intensified power cuts. “We have cut our GDP forecast for Q4 22 to -0.5% q/q sa and also project a Q1 23 contraction. For 2023 as a whole, the impact of power cuts on activity levels, business confidence and private investment cuts our GDP forecast by 0.9pp to 0.7%. The consumer has proven surprisingly resilient in 2022 despite headwinds, but for 2023 we halve our household consumption forecast from 0.8% to 0.4%.”

“We expect regular load shedding through to the end of 2024 at least.” The National Energy Crisis Committee’s strategy for ending load shedding intends to add up to 8822MW of additional power supply from various sources by 2023, but the absa bank predict just approximately half of this to be achieved.

ABSA say that “It will be hard to lift the performance of Eskom’s existing plants and new power supply takes time to procure and construct. Other structural reform progress remains slow and patchy, although the government recently added four new important reforms to Operation Vulindlela’s to-do list.”

Inflation has peaked and is expected to return to target by Q2 23. Base effects on fuel and food price inflation, together with gradually growing core CPI inflation, should result in headline CPI falling below 6% in May 2023, and returning to the target midpoint by mid-2024.

Oil prices remain an upside risk for  predicted inflation trajectory against the backdrop of China’s reopening, while corporate investment on backup diesel production in the face of significant load shedding is a cost-push upside risk. This year, the bank expect CPI inflation to average 5.5%.