Momentum Investments have released their report based on ‘Large downside surprise in fourth-quarter growth’ prepared by the Momentum Macro Research Team.

Please see below, a summary of highlights from the team, as well as a downloadable PDF of the research paper.

Commentary and highlights below by Sanisha Packirisamy, Economist at Momentum Investments, Tshiamo Masike, Economic Analyst at Momentum Investments and Herman van Papendorp, Head of Investment Research & Asset Allocation at Momentum Investments.

Highlights:

• According to Statistics South Africa (Stats SA), seasonally adjusted (sa) real gross domestic product (GDP)

contracted by 1.3% quarter-on-quarter (q/q) in the fourth quarter of 2022. This was a much worse outcome than the median Reuters consensus expectation of negative 0.4% q/q. Growth for last year averaged 2%.

• The finance sector as well as trade, catering and accommodation on the production side largely dampened growth in the fourth quarter. On the expenditure side, net exports detracted from growth and countered the increase in household consumption expenditure.
• The largest contributors to growth in 2022 were the services sector on the supply side and exports on the demand side. However, growth in 2022 slowed relative to 2021 partly due to strong base effects. Five out of 10 sectors on the production side recorded lower economic activity in 2022 compared to 2021 with large contractions in the mining, utilities and construction sectors.
• On the expenditure side, growth in household consumption was weaker in 2022 in relation to 2021. This corresponds with higher inflation and interest rates during 2022, which eroded household disposable incomes.
• On the other hand, growth in exports and imports were strong. However, export growth is expected to slow this year largely due to global factors (commodity prices and global economic growth).
• According to data from EskomSePush, national loadshedding hours in the fourth quarter escalated to 1 944 (an estimated 6 018 GWh). The high estimate of total energy shed in the quarter is the result of more hours of stage five and stage six loadshedding (collectively totalling 277 hours) during the quarter.
• Loadshedding negatively impacted economic growth in 2022. However, quantifying the exact impact has proven to be a challenge. The estimated impact of loadshedding on growth last year spans a wide range from 1.3% by ABSA to as much as 5% according to PwC.
• The energy crisis is expected to continue into the year and further dampen growth given that the Eskom debt relief programme is a long-term solution and the plan announced by the National Energy Crisis Committee (NECOM) of adding 8 822MW of new energy capacity this year is deemed optimistic.
• Economic growth is expected to be subdued in 2023. The SA Reserve Bank (SARB) projects the lowest growth of 0.3% y/y compared to other institutions due to increased loadshedding from 100 days to 250 days and logistic constraints. The International Monetary Fund (IMF) forecasts growth of 1.2% y/y, broadly in line with our estimate of around 1% for 2023.
• Apart from ongoing bouts of loadshedding, the subdued projections consider the weak economic outlook, constrained consumers and disruptions to the logistics network.

Download a copy of the report in PDF:

ENDS