South Africa narrowly avoided slipping into a ‘technical’ recession in Q1 23 despite the sharp escalation in load shedding

Growth will be the main domestic macro focus this week with the Q1 23 national accounts data. Despite the sharp deterioration in rotational power cuts, Absa group believes South Africa narrowly avoided slipping into a ‘technical’ recession in Q1. The bank forecast real GDP growth of 0.2% q/q sa for the quarter after 1.3% contraction in Q4 22. The Thomson Reuters consensus is for +0.4% but the range of forecasts is wide, running from -0.6% to +0.6%. As the group noted in South Africa: Surprising growth resilience, but can it continue? (22 May 2023), activity data in the first quarter of the year show that various parts of the economy were quite resilient in Q1 even as rotational power cuts worsened. In fact, the final iteration of our high-frequency data-based GDP tracking estimate points to GDP growth of 0.8% q/q sa for Q1 23, suggesting some upside risk to our baseline forecast. That said, given the volatility in high-frequency activity data and the fact that large parts of the economy have no intra-quarter activity data, uncertainty around our forecast is high.

Stats SA is scheduled to release the manufacturing output data for April on Thursday at 13:00 local time. Absa forecast that seasonally adjusted output fell by 0.7% m/m in April, partly reflecting some payback effects from the strong 4.0% rise in March, higher intensity of load shedding and production disruptions at a major car manufacturing after localised damage of electricity infrastructure. The business activity sub-index of the Absa manufacturing PMI fell to 47.6 in April from 48.1 in March, suggesting some loss of output momentum. Our m/m forecast translates to growth of 2.6% on a y/y basis in April (Thomson Reuters consensus: +2.5%) compared with -1.1% in March, mainly reflecting base effects related to the flooding in KwaZulu-Natal last year.

S&P Global is due to publish its May economy-wide PMI for South Africa at 09:15 local time today. This comes after the release of the Absa manufacturing PMI for May last week, which remained modestly below the 50 point mark for the fourth consecutive month. The group believe that the economy-wide PMI will reveal that broader private sector business conditions continued to deteriorate slightly in May partly due to intensifying power cuts and rising interest rates. Forecasting that the economy-wide PMI fell to a seasonally adjusted 49.0 points in May from 49.6 in April.

The National Treasury’s provisional financing data for May point to a main budget deficit of R19.1bn. This is only marginally wider than the deficit of R17.1bn in May 2022. The detailed main budget data for May will be published on 30 June. It is still too early to get any clear signal from the available data about the outlook for the remainder of the fiscal year. But as we argued in South Africa Quarterly Perspectives: No growth without power (2 May 2023), Absa expect a main budget deficit of 5.2% of GDP in 2023/24 versus the NT’s target of 3.9% due to the effect of weak growth on tax receipts and spending pressure from the public sector wage deal.   

External accounts will also come into focus this week with the release of the Q1 23 current account data on Thursday at 11:00 local time. The bank forecast that the current account deficit narrowed to 2.2% (Thomson Reuters consensus: -2.7%) of GDP in Q1 23 from 2.6% in Q4 22. Part of the sharp deterioration in Q4 22 was due to a large drop in export volumes after disruptions at Transnet and expect this to have largely normalised in Q1 23.

In its load shedding schedule for 4 to 7 June published yesterday, Eskom expects load shedding to vary between Stages 4 and 1. Load shedding is currently suspended but Stage 4 is planned for 16:00 to 5:00 daily while Stage 1 is pencilled in between 5:00 and 16:00 from tomorrow. As of yesterday, Eskom reported that 18085MW of generation capacity was offline due to breakdowns while a further 2239MW was down due to planned maintenance, implying an energy availability factor of 61% of total installed capacity.