Can the SA economy grow at 2% this year? - CNBC Africa

Can the SA economy grow at 2% this year?

Southern Africa

by Luke Doig 0

The creaking electricity generation situation in South Africa has been a drain on the ability of the economy to grow for some time now.

While it is easy to look at global developments and blame them for our woes, the truth is that most of our current problems are all of our own making. And consequently we are condemning ourselves to an also-ran status as other emerging markets – including some on the African continent – usurp our position. 

The creaking electricity generation situation has been a drain on the ability of the economy to grow for some time now.

The declining trend in year-on-year changes in electricity supply and output growth are clearly visible below and if our estimate of the magnitude of the contraction in electricity distribution in the first quarter of 2015 proves correct, together with the strong likelihood of this persisting for years, then GDP growth is going to struggle to even attain levels of 2 per cent that many are wishing for. 

Stats

This is adequately reinforced by the business cycle leading indicator falling by 2.4 per cent year-on-year in February, the 16th consecutive fall.

Further, despite inflation forecasts having fallen quite dramatically over the past few months, more recent developments are quickly reversing those gains. So while one could argue that the South African Reserve Bank should actually consider cutting rates given the poor economic climate, we will see rate hikes later this year notwithstanding the weak business environment. 

The honeymoon is over. This is the new normal. Prepare for more labour strife. Get set for extended electricity supply disruptions, higher operating costs and lower revenues – for years. 

*Luke Doig is a senior economist at Credit Guarantee Insurance Corporation

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