Nedbank revises down growth forecast as power cuts hit home
The bank’s chief economist warns of a ‘full-blown recession’ if electricity supply deteriorates further
Nedbank has cut its economic growth forecast for 2020 just days into the new year as SA is battling load-shedding, warning that the outlook could worsen if electricity supply deteriorates further.
The bank is now penciling in growth of 0.7% for 2020 down from its already “quite negative” estimate of 0.9%, Nedbank chief economist Dennis Dykes told Business Day on Thursday. But this growth forecast could “prove to be optimistic” if electricity supply deteriorates further, increasing the possibility of “a full-blown recession this year”.
Ongoing power cuts by Eskom have been an important factor in the revision, Dykes said. “The situation is deteriorating rather than improving, unfortunately, and unless there is some sort of miracle, I think it is going to be a binding constraint on the economy,” he said.
Dykes’s comments come after the World Bank cut its GDP forecast for SA on Wednesday, highlighting persistent policy uncertainty, constrained fiscal space, weak business confidence, and erratic power supply.
In its latest global economic prospects report, the World Bank cut its 2020 growth forecasts for SA to 0.9% from its previously held estimate of 1.5%. It also reduced its expectations for global growth in 2020 by 0.2 percentage points to 2.5%.
It noted that while the world economy is poised for a recovery after the worst performance since the financial crisis, the “outlook is fragile”.
Along with the “fairly muted” prospects for the global economy, Dykes said that SA consumers remain under pressure due to poor employment growth, which is a “big driver” of personal income growth.
Consumption expenditure by SA’s households, makes up about two thirds of GDP.
Though there have been recent increases in fixed-investment growth in recent quarters, Dykes does not expect this to improve significantly. “In this sort of environment I just don’t see why any firms would be putting in additional capacity. There might be one or two projects that come online, but nothing of major significance.”
The government needs to bring in new suppliers to the electricity industry to combat Eskom’s capacity problems, said Dykes, adding that the state also needs to move on policy reforms to create a more business-friendly environment.
“You have got to start thinking about how we can create a more business-friendly environment, however much that might hurt ideologically.”