Intellidex revises South African GDP forecast for the worse

A sustained power shortage with no evident solution in the near future has driven market research and consulting firm Intellidex to cut back its GDP growth forecast for South Africa between 2022 and 2026. The revision amounts to a one percentage point drop from 1.9% to 1.8%.

South Africa has a number of factors impeding its GDP growth, including a lack of overall investment from domestic and foreign sources, a disproportional reliance on commodities, and a rampant unemployment rate. Intellidex, meanwhile, has also raised concern surrounding the power shortage in the country.

The firm, which specialises in economic and financial research, stresses that load shedding and other indications of power shortages have severe repercussions across the economy. What is even more concerning is that there are few indications that the situation will be rectified in imminently.

According to Intellidex, a central criteria when forecasting economic growth is whether reforms are being implemented fast enough to inspire confidence in business. Despite reform efforts from a number of private and public entities, the current rate of reform appears to be too slow.

The current economic scenario, as per the firm, “struggled to cope with complex underlying reform timelines, deep and shifting uncertainty and load-shedding of varying stages over extended periods” The comments came in the context of the holiday season at the end of last year. 

South African public utility agency Eskom, responsible for power distribution across the country, is currently engaged in efforts to manage the power shortage, although the entity is navigating structural changes of its own. Meanwhile, the shift to alternative power sources is likely to be too slow to offer any economic promise, according to Intellidex.

“We think investors underestimate the long lead times of approvals and planning required before construction can even start and, as such, [the second half of] 2021 is likely to be when any serious amount of power could realistically come on at the earliest,” said the firm.

Overall, the firm’s outlook for the country is grim. “The narrative is the same – negative per capita income growth and an economy that simply is failing to accumulate investment, total factor productivity growth or absorb labour,” it said.