South Africa’s economy shrank more than expected in the last quarter of 2022

South Africa’s economy shrank more than expected at the end of 2022 due to server rolling blackouts. The latest real Gross Domestic Product (GDP) data released by Statistics South Africa (Stats SA) on 07 March 2023, shows that the South Africa’s economy shrank by 1.3% in the fourth quarter of 2022, much worse than economists expected.

The contraction in GDP is certainly a worrying development, especially given the current economic environment against the backdrop of rising unemployment levels, rising input costs, increasing energy costs and the persistent loadshedding.

Seven of the Ten South African industries contracted in the last quarter of 2022, linked mainly to the severity of power outages took a heavy toll in the economy, with only two days without load shedding in the whole quarter. These has had a negative impact on output and sales across industries whilst at the same time production costs are escalating.

Notable declines were recorded on finance (-2.3%); trade, catering & accommodation (-2.1%); mining (-3.2%), agriculture (-3.3%), and manufacturing (-0.9%). Increases were recorded in transport, storage, and communication (0,7%); construction (0,5%); personal service (0,2%).

The Steel sector is heavily reliant in the performance of the construction, mining and other manufacturing market segments to survive, as these are the key sectoral markets. The overall negative performance during the fourth quarter can be seen in the basic iron and steel, non-ferrous metal products, metal products and machinery division which has made a significant contribution to the contraction in the manufacturing industry.

Net exports contributed negatively to growth in expenditure on GDP in the fourth quarter. Exports of goods and services decreased by 4,8%, largely influenced by decreased trade in base metals and articles of base metals; mineral products; and paper and articles of paper.

The National Treasury forecast growth of 0,9% while the Reserve Bank’s projection of 0.3% GDP growth for 2023 based on worse assumptions than Treasury’s. Both scenarios suggest weak growth for 2023 compared to the 2022 GDP growth of 2,0%. This suggest that it is unlikely that the sector would see any significant improvement any time soon as severe power cuts and fiscal consolidation continue to weigh on the economy.

Furthermore, critical sectors linked to the steel sector such as construction, mining and manufacturing are yet to recover to their pre-pandemic levels of production. The construction remains in worst shape, remaining 23.1% smaller than what it was before the pandemic.