Power crisis: Sarb slashes GDP forecast in half for next two years


The South African Reserve Bank (Sarb) slashed the country’s growth forecast by half for the next two years on Thursday, highlighting the dire impact the worsening power supply crisis is anticipated to have on the economy.

Delivering the first Monetary Policy Committee (MPC) statement of the year, Sarb Governor Lesetja Kganyago said the central bank now projects that South Africa’s 2023 GDP will grow by a meagre 0.3%, due to “extensive load shedding” as well as other logistical constraints.

The bank’s previous estimates (in November) were for 0.6% GDP growth this year and 1.4% in 2024. Its forecast GDP growth for 2024 is now just 0.7%, and it has cut its growth forecast for 2025 from 1.5% to 1%.

These significant downward revisions come as load shedding has escalated to unprecedented levels, with multiple power cuts taking place daily for several weeks now.

The Sarb also forecasts no growth for the fourth quarter of 2022, despite the economy growing 1.6% in the prior quarter. Official GDP figures for the last quarter of 2022 and the year as a whole are yet to be released, but the bank estimates that 2022’s growth will come in at 2.5%.

“The forecast takes into account ongoing high levels of load shedding, and more modest household spending and investment growth than previously,” Kganyago said.

The Sarb hiked the repo rate by 25 basis points to 7.25%, in its eighth increase since the MPC commenced raising rates to curb rampant inflation, effectively pushing the prime lending rate to 10.75%.

Read: Sarb lifts repo rate by 25bps

During his repo rate announcement, Kganyago added that the GDP forecasts take increased load shedding per year, relative to what was factored in at the time of the previous MPC meeting in November, into account.

More power cuts …

In 2023, 250 days of load shedding have been pencilled in (up from 100 days).

For 2024, the previous forecast of 40 days has been increased to 150.

And in 2025, load shedding is likely to take place on 100 days, according to the bank.

This week, South Africa was thrust into permanent rolling blackouts, which state power utility Eskom said will last for up to two years, in order to give it room to overhaul its decaying infrastructure.

Read: SA faces two more years of power outages, Eskom says

“While economic growth has been volatile for some time, prospects for growth appear even more uncertain than normal,” Kganyago said.

“A material reduction in load shedding would significantly raise growth,” added the governor.

He said it is still difficult to quantify the full impact load shedding will have on growth, but conceded that it “adds inflationary pressures to the cost of doing business and the cost of living for households”.

He made the comments during a media briefing following the MPC announcement on Thursday.

“Load shedding is not only impacting growth, which is the conundrum, the dilemma that South Africa faces … we believe it has price effects in the sense that businesses and households have to try and find alternative energy.”


Commenting on the Sarb’s sharp downward GDP revisions, chief economist at Sanlam Investments Arthur Kamp said the forecasts were “far below the required level to deliver a meaningful, sustained decrease in the unemployment rate”.

“South Africa’s paltry economic growth rate cannot be attributed to monetary policy. Rather, the lack of sufficient, reliable energy supply, infrastructure bottlenecks and a high government debt level, which crowds out private sector investment, are the main problems,” he added.

Carmen Nel, economist at Matrix Fund Managers, noted that the Sarb’s concerns about electricity supply indicate it is doubtful about the government’s ability to find a solution to the crisis.

“[The] Sarb is clearly not factoring in much chance of improved power supply. Electricity constraints, weak global growth, lower commodity prices, and depressed sentiment result in a weaker growth outlook. This, in turn, is expected to dampen inflation pressure down the line,” she said.

Luigi Marinus, portfolio manager at PPS Investments, commented: “Local GDP growth is expected at 0.3% compared to the previous 0.6% forecast. The MPC estimates that load shedding will have a 2% negative impact on GDP growth in 2023. This puts further pressure on growth in subsequent years with forecasts of 0.7% growth in 2024, [down from 1.4%] and 1% growth in 2025.”

Kganyago in Davos: Reserve Bank ‘lacks the tools’ to create jobs
There is only one way to end load shedding: Together

Speaking to Moneyweb, Frank Blackmore, lead economist at KPMG, said while permanent load shedding is on the cards, uncertainty lingers regarding how severe it will be over the years it is planned.

“Currently, we’re already on [Stage] 4 … We would’ve had growth of 2%, now we’ve taken off two whole percentage points from that.

“Nationally, the broader impact on growth will be severe,” he added.

Blackmore further said a mismatch in public wage growth this year and productivity may present risks to the economy.

“If those [wage negotiations] are more in line with productivity, then there’s not much risk to the economy, but if they’re out of line with what’s happening on the productivity side, then that translates to second round effects on inflation, and of course, that means higher rates for longer, and less growth.”

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