Local economy likely to have averted a technical recession: Economist

The local economy looks likely to have averted a technical recession, which is two consecutive quarters of negative growth. That’s according to economists who expect third-quarter economic growth to have gone up slightly when compared to the contraction in the second quarter.

The weak performance will likely be on the back of ongoing intense load shedding and the effects of the severe floods in KwaZulu-Natal, which both weighed heavily on economic activity.

Economic growth is expected to have picked up by about 0.4% in the third quarter from the 0.7% contraction recorded in the second quarter.

Load shedding is expected to have hurt energy-intensive sectors like mining and manufacturing, while the increasing cost of living would likely impact negatively sectors like retail, as consumer consumption is affected by high inflation and high debt repayment costs wiping off disposable income.

Chief Economist at Don Consultancy Group, Chifipa Mhango, says, “We are not expecting much. I think the trend will be similar to that of the employment number that came out last week at a sectoral level perspective. The key sectors such as mining and manufacturing sector have all been heavily impacted by the load shedding. These are highly energy-intensive sectors. So, we expect in terms of their decline segments of those segments of the economy, because of what happened in the third quarter, where we have massive load shedding in our local economy, also the consumption patterns from the consumer perspective has also been negatively affected by the rising environment in terms of cost of living.”

Despite the expected uptick in growth in the third quarter, others say the economy is still exhibiting weakness that is unlikely to create jobs that can address current socioeconomic challenges.

Chief Economist at Investec Annabel Bishop, says, “We have seen industrial production rise by 1.6% in the third quarter of this year versus the second quarter. This is a positive outcome and of course, it will add to the overall rise. However, we still saw retail sales contract significantly in the third quarter versus the second quarter, while we also have seen poor outcome coming from the volume of transactions. Overall, we think that the GDP will be a fairly mixed bag. However, we think that it will be slightly positive due to the base effects coming from the contraction in the second quarter as a consequence of the floods this year.”

Bishop believes the fourth quarter will probably be weaker than the third quarter.

The reserve bank expects economic growth to average 1.8% for this year.