In the report, Absa upwardly revised its near-term GDP growth forecasts. The group now forecast real GDP growth of 0.7% in 2023 (0.4pp higher than in the last Quarterly Perspectives) and 1.6% in 2024 (0.3pp higher). Despite the sharp escalation in load shedding, economic activity in H1 23 was healthier than it expected.
Electricity supply will continue to be a growth risk, but it believes that ongoing efforts in a private generation will make the economy more resilient over time. That said, overall growth momentum is likely to remain weak as weak business confidence constrains a generalised investment cycle while household consumption growth will also be under pressure.
Headline inflation is likely to ease further but uncertainty remains high. The Absa Group expect headline inflation to ease further, reaching 5.0% by December 2023 and averaging 4.8% in 2024, partly driven by further moderation in food and core inflation. It believes the SARB’s hiking cycle has ended and that the next move will be down.
Absa expects the SARB to cut rates from March next year. However, with global interest rates likely to remain higher for longer and South Africa gradually becoming a riskier investment amid weak growth and deteriorating public finances, it now expects a terminal repo rate of 7.50% compared with its previous forecast of 7.00%. On public finances, it now forecast a revenue shortfall of R39bn (previous: R25bn) in 2023/24 compared with the 2023 Budget target. Counting Eskom’s debt relief above the line, the group now expect a main budget deficit of 6.6% of GDP in 2023/24, up slightly from its previous forecast of 6.3%. It continues to see risks to our Baseline forecast as skewed to the downside (see South Africa Q3 23 Quarterly Perspectives: Short-term resilience, long-term constraints, 7 August 2023).
The domestic data calendar is fairly light this week with the scheduled release of the June manufacturing and mining output data keeping growth in focus.
Monthly output weakened in both the manufacturing and mining sectors in May. However, average seasonally adjusted manufacturing production in April and May was 2.0% higher than the average monthly output in Q1. Similarly, average monthly mining output over the same period was 1.7% stronger than in Q1. This suggests that big businesses are increasingly finding ways to adapt to the ongoing electricity supply challenge.
Stats SA is due to publish the June production data for both sectors on Thursday.
For the manufacturing sector, the business activity sub-index of the Absa PMI rose marginally in June to 48.9 points but remained in contractionary territory. But it has noted before, it is not unusual to see some divergence between official output data and PMI data. As such, the group expect a slight output rebound of 0.8% m/m sa in June after the 1.3% fall in May. The group m/m forecast translates to y/y growth of 4.4% (May: 2.5%). Similarly, it expects mining output to have rebounded by 1.5% m/m sa in June after the sharp 3.8% m/m fall in May. This is equivalent to y/y growth of 1.1% y/y in June (May: -0.8%). This week’s data prints will allow for further calibration of our Q2 GDP tracking estimate, which currently stands at +0.6% q/q sa.
Eskom said in a statement that it would implement a slight escalation in load shedding to Stage 4 in the evenings.
Following a weekend of Stage 1 and Stage 3 load shedding, Eskom said that power cuts would remain at Stage 1 during the day (05:00 to 16:00) but would be escalated to Stage 4 in the evenings (16:00 to 05:00). The utility said that it will repeat this pattern of rotational power cuts until Wednesday. Eskom expects no load shedding during the day on Wednesday, likely due to expected lower demand given the national holiday. As of yesterday, plant breakdowns stood at 15 050MW, while planned maintenance accounted for 4 434MW, leaving Eskom’s energy availability factor at 59% of installed capacity.
