Nedbank says SA likely entered recession in Q4 of 2022

Nedbank, one of South Africa’s big-six banking groups, estimates that GDP in the final quarter of 2022 shrunk 0.4%, saying South Africa likely entered a recession, following intensified rolling power cuts weighing on productivity.

A technical recession is represented by two consecutive quarters of negative growth.

In 2023, the bank expects the South African economy to grow by a meagre 0.4%, closer to the South African Reserve Bank’s (Sarb) growth projection of 0.3%. This is down from a previously forecast 0.7% growth.

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In contrast, Nedbank expects growth for the full 2022 year to come in at 2.3%.

South Africa’s power supply struggles have grossly dampened productivity across many sectors of the economy, with load shedding having been implemented every day since the end of October last year. In the last quarter of 2022, only two days were load shedding free.

“On top of this, the hours per day without electricity increased dramatically, with 51% of Q4 at load-shedding stages 3 to 6. These paralysing disruptions hurt output and sales in all industries while driving up production costs across the board,” Nedbank’s economic unit said on Monday.

Production and manufacturing

It said production in the mining and manufacturing sectors, which the South African economy heavily relies on, was hardest hit, with output declining over the quarter.

“Elsewhere, the impact was less, but growth in services nonetheless slowed significantly over the quarter,” the bank said.

For the first quarter of 2023, the bank sees a further contraction in GDP of 04%.

While the banks sees improved growth later this year, it is premised on a more predictable load shedding schedule, and power cuts being restricted to Stage 3 and 4 on average from the second quarter.

“Greater predictability will allow industries to adjust their operations accordingly while adapting to off-grid measures of power generation. Even so, persistent and intensive power outages will continue to hurt output and drive operating costs sharply higher, eroding profits and forcing companies to seek savings elsewhere in their cost structures,” it said.

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Sadly, this could entail renewed restructuring, resulting in another wave of job losses in certain industries,” Nedbank said.

Added to South Africa’s woes are other structural constraints such as transport and logistics bottlenecks and port inefficiencies disrupting key sectors.

“Redirecting freight from rail to road and to other ports is associated with sharply higher costs, significant delays, and other challenges. Mining has further been plagued by criminality, including attacks on miners, community unrest, and illegal mining,” the bank said.

“Despite the plans put in place by the government (Operation Vulindlela) to address these inefficiencies, it is unlikely to yield results or bring meaningful relief in 2023,” said Nedbank.

The bank unit’s comments echo those by other banks and business leaders, including Standard Bank and FirstRand.

This article originally appeared on Moneyweb and was republished with permission.
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