South Africa’s intense load shedding is expected to last throughout this week and will negatively impact the country’s growth prospects, ahead of the South African Reserve Bank’s (SARB) latest interest rate announcement on Thursday.
This was the gloomy forecast from the Bureau for Economic Research (BER) in its Weekly Review released on Monday, warning that the onset of Stage 6 loadshedding threatened economic growth recovery prospects for the third quarter of 2022.
“The loop between sustained high global inflation, aggressive policy interest rate hikes and concerns about the adverse impact of this on real GDP growth prospects continued to dominate global economic headlines last week,” the Bureau said.
“Against a worsening global economic backdrop, the economy was again hit by debilitating power rationing. After implementing stage 4 load shedding during the week, Eskom was forced to escalate rolling blackouts to stage 6 on short notice over the weekend. The intensity of the current power cuts threatens the GDP recovery from the 0.7% quarter-on-quarter contraction experienced in 2022Q2,” the BER said.
The unplanned breakdown of several generating units, coupled with elevated (around 7 000 megawatts) planned maintenance, meant that about half of Eskom’s total generation capacity was offline.
The high unplanned outages required Eskom’s emergency generation unit – the diesel-fired turbines and dam-storage facilities – to work overtime last week.
“These reserve units now need to be replenished, putting some of them out of service and necessitating higher levels of load-shedding,” the BER said.
Eskom COO, Jan Oberholzer, told journalists at a media briefing on Sunday that although the expectation was that several coal-generation units should be brought back online in the next day or two, high levels of load-shedding were likely for the rest of the week.
The parastatal is also seeking to expedite the procurement of an additional 1 000 of existing capacity from Independent Power Producers and large industrial companies with excess power capacity.
The BER added that it expected the central bank to announce a 75 basis points (bps) interest rate hike after its Monetary Pricing Committee meeting on Thursday. They also expect the US Federal Reserve to hike interest rates by 75bps.
“The latest monetary policy decisions from the Bank of Japan and the Bank of England are also due on Thursday.
“Before the SARB interest rate verdict, in a key release, we get the SA consumer inflation figures for August on Wednesday. After rising to 7.8% year-on-year in July, we expect the annual headline CPI inflation rate to moderate to 7.3%, somewhat lower than the Bloomberg consensus of 7.5% in August,” the BER said.
Some analysts have punted the possibility that the Fed’s policy committee could move by 100bps.
“The sustained aggressive monetary policy stance by advanced central banks, notably the Fed and the European Central Bank, is an important reason of why we expect the SARB to also continue with a more aggressive policy stance. At least against the US dollar, fast-rising global interest rates have put downward pressure on the rand exchange rate of late,” said the BER.
However, the prospects for the currency have also weakened following the release of an unexpected current account deficit for the second quarter of 2022.
“In addition, there has been confirmation of rising domestic wage pressures since the MPC’s previous meeting in July. With this in mind, another 75bps hike seems justified. In fact, it would not surprise if we again see at least one MPC member favouring a 100bps move at this week’s meeting,” said the BER.
