The International Monetary Fund (IMF) has warned that South Africa’s economic growth would likely slow down in 2023 because of power outages, thus entering the stagnation stage.
After visiting the continent’s most industrialised nation, an International Monetary Fund delegation reported a worsening of the country’s short-term growth prospects.
A statement stated that “South Africa’s economic and social issues are growing, posing a risk of stagnation amid a historic energy crisis, and increasingly constricting infrastructure and logistics bottlenecks.”
According to the report, “Real GDP growth is anticipated to slow dramatically to 0.1% in 2023, mostly as a result of a considerable increase in the frequency and duration of power outages, as well as the worse commodity prices and external environment.”
The Central Bank of South Africa predicted in January 2023 that the country’s economy would expand by just 0.3% in 2023, down from 2.0% in 2022.
The South African economy may experience a technical recession if activity declines in the first quarter of this year after the GDP shrank by 1.3% in the final three months of 2022.
Throughout 2022, economic activity in South Africa had been impeded by record-breaking blackouts as issues at the struggling power utility Eskom have worsened.
The energy ministry estimates the disruptions cost more than USD 50 million in lost output daily. The country’s government declared that it had noted the International Monetary Fund team’s conclusions.
According to a statement from the treasury, “National Treasury is aware of the majority of the risks to economic growth and is working on mitigating measures to address these.”
The outages, which have since intensified, led President Cyril Ramaphosa to declare a state of disaster by March 2023 and appoint Kgosientsho Ramokgopa as electricity minister to tackle the crisis.
Cyril Ramaphosa’s governing African National Congress is preparing for elections in 2024 where its long-held Parliamentarian majority is at risk from the anger of the domestic population over the blackouts’ impact on the country’s economy.
The latest GDP contraction means that South Africa’s gross domestic product has been largely flat since the end of 2019, even as the country’s population has increased by 3.5%.
The quarterly drop was the largest since deadly riots in 2021 that wrecked critical infrastructure in the country’s two most economically important provinces.
The economy grew just under 1% in the fourth quarter compared with the same period in 2021, well below the expectations of most economists.