25 March 2019

South Africa: Recession and Downgrade? Economists Spell Out Risks That Come With Load Shedding

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Economists have argued that the risks to the South African economy are so grim that the country is flirting with a fresh technical recession as well as a sovereign credit rating downgrade from the agencies that have spared the country time and time again. Subscribe to Fin24's newsletter here

Minister of Public Enterprises Pravin Gordhan and Eskom's executive directors briefed South Africa on Tuesday to say that the load shedding crisis in the country showed no sign of letting up.

Fin24 reported that stages five and six of load shedding could soon be introduced to relieve grid pressure.

Meanwhile Eskom CEO Phakamani Hadebe told Eyewitness News on Tuesday that load shedding could continue for another six months. The rand has also since felt the weight of frequent load shedding.

Friday was the first day in almost a week that Eskom implemented Stage 2 load shedding instead of Stage 4.

Earlier in March, Statistics South Africa announced that the South African economy grew by 1.4% in the fourth quarter of 2018, and 0.8% growth for the 2018 year, slightly above expectations.

READ: Moody's could take dim view on load shedding next week, economists warn

Efficient Group economist Francois Stofberg told Fin24 that the South African economy remained on a knife edge and that any unexpected shocks would cause contractions which would "almost certainly send us into a technical recession".

"We are at a sensitive point where markets and currency are vulnerable. The base has been eroded substantially. It's not like one or two percent growth and then a shock comes. It is not easy to push yourself into a recession in these conditions, but unexpected shocks can drive you closer into that direction," said Stofberg.

Econometrix economist Sam Rolland said credit ratings agencies maintained South Africa's current credit rating after Minister of Finance Tito Mboweni reaffirmed government's commitment to supporting Eskom during his first budget speech, but that they will need further reassurance if we hope to steer clear of a downgrade.

"Agencies didn't downgrade us after the budget, but any deterioration in the state of Eskom will force them to downgrade us until we find a lasting solution quickly. If they were to downgrade us, we leave the emerging group of economies. At the end of the day, the agencies have to be realistic with their ratings," said Rolland.

Moody's is expected to 'pronounce on South Africa's sovereign credit rating on Friday.

Source: Fin24

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