Treasury to reassess GDP growth outlook, says Godongwana

The Treasury will have to reassess its GDP growth outlook in the light of a weaker than expected GDP outcome for 2022, finance minister Enoch Godongwana said on Monday.

GDP growth in the fourth quarter of last year came in at a shocking minus 1.3%, due largely to load-shedding, bringing the 2022 outcome down to 2%.

Godongwana said the Treasury reassessment would have to take into account associated risks including load-shedding, which has had a crippling effect on the economy and resulted in the IMF revising its GDP forecast for 2023 from the January forecast of 1.2% to a meagre 0.1% because of the significant increase in the intensity of power cuts as well as weakened commodity prices and the external environment.

The Reserve Bank is due to update its GDP forecast when it releases the repo rate decision of the monetary policy committee on Thursday. Its January forecast for 2023 was 0.3%.

In the Budget Review released in February, Treasury estimated real GDP growth of 2.5% for 2022 and 0.9% for 2023, before rising to 1.5% in 2024 and 1.8% in 2025. But this was before the intense load-shedding which lasted up to six hours a day in some cases.

Godongwana was replying to a question by National Council of Provinces MP Stephanus du Toit, who wanted to know what were the Treasury’s estimates of the cost of load-shedding on the SA economy for each financial year since 2008.

“In the past few years, the National Treasury has continuously taken into account the energy constraint when generating its macroeconomic forecasts, and frequently reviews its outlook for load-shedding based on the most recent information at its disposal. As such, the latest weaker than expected 2022 GDP outcome will warrant a reassessment of the GDP growth outlook and the associated risks, including load-shedding,” said Godongwana.

He said the Treasury had undertaken various analyses over the past few years to assess the impact of the electricity constraint on SA’s economic activity.

“Despite the plethora of methodologies that can be used to conduct this analysis, the National Treasury primarily uses analytical tools such as its macrostructural model as well as a computable general equilibrium (CGE) model to simulate the impact of electricity shortages on factor productivity, investment and potential growth,” the minister said. 

“Owing to the sensitivity of the impact estimates to assumptions, the analysis is generally built on detailed energy modelling (and assumptions) conducted by institutions such as the CSIR and is supplemented by secondary research, data from Eskom’s Medium-Term System Adequacy Outlook as well as consultations with key stakeholders and experts in the energy sector.”

The 2015  Budget Review estimated growth to decline to 1% in 2015 (relative to baseline growth of 2%) should electricity availability continue to worsen. 

The 2019 Budget Review GDP growth was expected to weaken by 1.2 percentage points to 0.2% in 2019 due to electricity constraints. This was equivalent to a loss in GDP of R40bn when adjusted for inflation.

The 2023 Budget Review painted three economic scenarios, one of which was based on intensified power cuts and delays in procuring new generation capacity which would slow GDP growth to 0.2% in 2023 and recover to only 1.3% in 2025.

ensorl@businesslive.co.za