Economists have now warned that the electricity supply constraints experienced in the fourth quarter will hurt economic growth
A PLUNGE in sentiment in the agricultural sector and the load shedding currently implemented by Eskom have cast a shadow on third-quarter economic growth data, which showed the economy exited recession in the quarter, registering its biggest growth since the last quarter of 2017.
Markets yesterday cheered as third-quarter gross domestic product (GDP) surprised on the upside; expanding 2.2percent, well above market expectations of a 1.6percent expansion.
However, the rand, which strengthened to R13.55 against the dollar following the release of the GDP data, retreated to R13.72 following Parliament’s adoption of the contentious land expropriation report.
Statistics South Africa said economic growth in the third quarter was driven by the manufacturing, transport and finance industries.
The agriculture sector, which plunged 29.2 percent in the second quarter, rebounded 6.5 percent in the quarter under review.
The primary sector, however, contracted by 5.4percent in the third quarter, driven by decreased mining production in platinum group metals, iron ore, gold and copper and nickel.
Economists have now warned that the electricity supply constraints experienced in the fourth quarter will hurt economic growth.
Professor Raymond Parsons, from the North West University Business School, said extended disruption of electricity supply would exact its cost in terms of production losses during this quarter and even beyond.
“At the very time when South Africa is committed to boosting investor confidence, the impact of a lack of security in power supply might also have a negative effect on the positive investor sentiment and capital formation needed to support a higher growth trajectory,” Parsons said.
The state-owned power utility has embarked on power cuts “as a measure of last resort to protect the power system from a total collapse or blackout”.
John Ashbourne, a senior emerging markets economist at Capital Economics, said growth would probably soften in the fourth quarter due to weaker agricultural growth and the imposition of power cuts by the troubled state electricity firm.
“Early signs suggest that conditions in the fourth quarter were difficult. The Agbiz and Industrial Development Corporation’s measure of confidence in the agricultural sector slipped to the lowest level since 2009,” Ashbourne said.
Parliament adopted the report on the expropriation of land without compensation after the ANC’s majority ensured the report got the nod from legislators.
KC African Economics analyst Elize Kruger said many local headwinds were still present. “It is clear that the current environment of policy uncertainty, particularly relating to land reform (but also wider) and also low demand, is still stifling investment and keeping a lid on economic growth.”