EDITORIAL: Amid a bleak economic outlook, one piece of good news gives hope

As SA’s economy reopens after the holiday season shutdown, the outlook for 2023 is subject to a couple of big new uncertainties that have emerged in the past month. But while those pose downside risk, that the outcome for the economy could be even worse than expected, they also bring some upside risk.

SA’s economic outlook did seem to be looking up late in 2022, after surprisingly good third-quarter GDP figures from Statistics SA suggested an economy that was resilient even during the worst load-shedding on record. The economy posted quarterly growth of 1.6%, despite load-shedding which, according to Reserve Bank estimates, was employed for 47% of the time on average in the third quarter, up from the already sky-high 33% in the second. Even though the fourth quarter outcome is expected to be a lot worse, growth for 2022 could come in meaningfully better than the Bank’s latest estimate of 1.8%. And while 2023 was always forecast to see a slowdown, to hardly more than 1% as the global economy headed into potential recession, investment seemed to be picking up, boding well for future growth.

The modest upward trend in private sector investment came after a long drought. And much of it was because of the energy sector reforms that the government finally embarked on last year. The opening up of the market to private investment in generation not only started to get money flowing; as importantly, it also signalled SA might be on the path to tackling the electricity crisis; and it inspired confidence, which in turn might have helped boost the appetite for private investment in other sectors. Added to all that was the prospect of the $8.5bn in Just Energy Transition investment plan finance starting to flow over the next couple of years.

But events of recent weeks have cast some big clouds over the energy sector outlook, which now looks more uncertain than ever. Eskom CEO Andre de Ruyter’s resignation is one factor: his commitment to the green transition and to private participation in the market was a key factor in making it happen. Who his successor might be and where their sympathies might lie is disturbingly unclear, particularly given the unpleasant politics prompting his departure and the apparent attempt to poison him.

Adding to the energy uncertainty has been the ANC and its politics: though president Cyril Ramaphosa has kept his post, mineral resources & energy minister Gwede Mantashe has cemented his position politically, which raises questions about the coal lobby in party and government even more aggressively undermining Ramaphosa’s energy reform efforts. And if there is the risk of the energy crisis being worse than expected for economic growth, so too could the transport and logistics crisis, with not a lot of progress in sorting out Transnet’s woes either.

All of that could continue to hamper SA’s export performance, adding to the downside risk from a bleak global economic outlook. The IMF cut its forecast for global growth in 2023 to 2.7%, warning that global recession was a distinct possibility. Leading global economists now seem in no doubt that global recession is what we are going to see this year, as advanced country central banks keep raising interest rates to try to combat inflation, which is still at multidecade highs. Goldman Sachs has cut its forecast for global growth to 1.8%.

Most economists define anything less than 2% as global recession. And while a resilient US is expected to narrowly escape recession, Europe and the UK are widely expected to go negative for the year. That will affect SA’s economic fortunes, given that they are key trading and investment partners.

A potential upside, however, could come from the latest astonishing developments in China. It had been expected that in April, perhaps, China might carefully start to move away from the zero-Covid strategy it has maintained for more than two years. Instead, it jettisoned the entire policy all of a sudden, reopening its economy and its borders just like that.

With Covid-19 spreading rapidly through China’s population, it is going to be an extremely bumpy ride. But the faster than expected reopening of its economy could provide a boost to the global economy in 2022, bumpy though it all might be. Amid a bleak outlook at home and abroad, there has got to be at least some upside.