SA falls into another recession as Eskom power cuts bite

SA’s slipped into a much deeper contraction in the fourth quarter than economists expected as it recorded its second recession in less than two years.

While the economy managed to eke out paltry growth for the entirety of 2019, the 1.4% decline in the fourth quarter compared to a 0.2% forecast of economists polled by Bloomberg. The rand dropped about 1%.  

The data released by Stats SA on Tuesday shows that for the full year, the economy managed growth of just 0.2%, down from 2018’s 0.8%, the sixth consecutive year that SA’s economy has grown below 2% and the lowest level since 2009, according to Stats SA.

The fourth quarter contraction compared to a revised contraction of 0.8% in the previous quarter. Stats SA had previously put that decline at 0.6%.

At these levels the economy is not growing at the pace needed to keep up with population growth, which is at about 1.4%, meaning GDP per capita is set to decline and South Africans are likely to become poorer.

The outcome is lower than the growth rates expected by both the SA Reserve Bank and the Treasury, which had forecast that the economy would grow 0.4% and 0.3% in 2019, respectively.

The outcome is also well below revisions to growth forecasts made by a number of multilateral agencies, including the International Monetary Fund, which had expected the SA economy to grow 0.7% during 2019.

The economy has been hit hard by power cuts, which began in earnest in December, and are expected to continue for the coming 18 months. Struggling power utility Eskom — which has battled operational difficulties and requires regular financial support from the fiscus — has been identified as a key threat to SA’s economy. At the same time, consumer and business confidence levels have languished, weighing on household spending and private sector investment.

The quarterly contraction was widespread with almost all industries in the primary, secondary and tertiary sectors seeing contractions. The only growth was recorded by the finance, mining and personal services sectors.

On the expenditure side of the economy, growth contracted 1.2% in the fourth quarter, deeper than a revised 0.4% decline in the third quarter. A key contributor to the decline was a sharp 10% decline in gross fixed capital formation, which is seen as an indicator of fixed investment in the economy. On an annual basis, expenditure on GDP grew just 0.1% for the full 2019 year.

To add to SA’s internal woes, the global economy is grappling with the potential economic effects of the coronavirus outbreak, which began in Wuhan, China.

On Monday, the Organisation for Economic Co-operation and Development (OECD) warned that if the spread of the virus is not sufficiently contained, the pace of global growth could halve.

The OECD cut its expectations for growth in China — an important consumer of SA commodities — to below 5% in 2020.