Mariam Isa
7 February 2008
Johannesburg — SA's economy could slide into recession this year if official steps to deal with power shortages failed to limit their effect on the production of goods and services, the South African Chamber of Commerce and Industry (SACCI) warned yesterday.
The warning came as the SACCI said its business confidence index dived to a new four-year low last month, and would continue to weaken this year.
The index did not yet fully reflect the blow to business confidence of a spate of electricity blackouts last month, which halted mining production for five days running, it said.
"If we don't manage the electricity crisis properly, our economy is heading for a serious slowdown," said SACCI CE Kwandi Kondlo.
"If the interventions -- short-, medium- and long-term -- don't work, we are facing the risk of a recession head-on. If we don't solve this problem it's going to kill our economy."
The government has declared the inability of Eskom to meet rising demand a national emergency, and announced steps to deal with the crisis. These include a 10% mandatory cut in electricity consumption by households, companies and industries, to last until 2010.
Electricity prices are set to double over the next five years to help finance Eskom's ambitious expansion plans, but top officials say they want to offer power at reduced rates for new energy- intensive projects, in an apparent bid to reassure investors.
Many economists have sharply lowered their economic growth forecasts for this year to account for the power constraints, which are set to last until significant new generating capacity comes on line in 2012.
Most are predicting the pace of growth will subside to just over 3% this year from an average of about 5% over each of the past four years -- still well down from a 25-year peak of 5,4% in 2006.
SACCI economist Richard Downing said growth may slow to between 1% and 2% this year in response to the direct and indirect effect of power rationing -- and he believes that is not the worst-case scenario.
"Even if the loss in output could be limited to 5%- 10% of gross domestic product, it will be difficult to attain any growth in the economy in 2008," he said.
SACCI's business confidence index fell to 93,8 last month from 94,8 in December -- its lowest since October 2003. Turmoil in global financial markets, outflows from the local stock market , and the rand's abrupt depreciation over the past two days had also weighed on the business mood, Downing said.
The rand dived to a two-year low to the dollar yesterday, and has slid nearly 12% so far this year against a trade-weighted basket of currencies.
That could stoke rising inflation and force the Reserve Bank to raise interest rates again, he warned.
Negative sentiment was "contained" last month by record prices for precious metals like gold and platinum, which are important South African exports.
The rand has been pressured by the sell-off in South African shares and bonds, which can be blamed largely on global risk aversion fuelled by rising concern about the effect of a US recession. But if that trend carries on, the unit will extend its losses.
A swing to the left in leadership of the ruling African National Congress late last year has also curbed appetite for South African assets. However, this had now been overshadowed by the magnitude of the power crisis, Kondlo said.
Absa Capital's chief economist, Jeff Gable, has revised his growth forecast for this year down to 3,6% from 4,5% before.
He predicts growth in the first quarter of this year will amount to just 2,5%, reflecting the mining shutdown.
"If the very worst of the electricity supply problems persist for months, then a short, technical recession would be possible," he said. "But we don't think this would be the result of a 10% drop in power supply over the medium term."
Be the first to Write a Comment!
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
