South Africa has downgraded its economic projections after its worst spell of rolling blackouts in the continent’s most industrialized country.
The South African Reserve Bank raised its benchmark rate by a quarter of a percentage point to 7.25 percent, a smaller increase than previous policy decisions and below the half-point rate expected by economists, warning that the country’s economy is barely growing. this year.
In November, the forecast for expansion was 1.1 percent. But that was before Eskom, the struggling state electricity company, began cutting power for up to 10 hours a day. The bank now expects growth of just 0.3 percent.
The blackout lasted more than 200 days in 2022 and continues every day to this day. The central bank said it expected Eskom to implement 250 days of outages this year, up from a previous forecast of 100 days. Electricity cuts will shave “2 percentage points off growth in 2023, compared to the previous estimate of 0.6 percentage points”, he said.
The central bank also cut its growth forecast for 2024 from 1.4 percent to 0.7 percent, while expecting 150 days of power outages.
Eskom produces almost all of South Africa’s electricity supply. Damage to aging coal-fired power stations, corruption, and a lack of funding for maintenance have increased pressure on President Cyril Ramaphosa’s government.
The shift to a slower pace of tightening comes as the central bank continues to fight above-target inflation.
South Africa’s inflation remains above the midpoint of its target range of 3 to 6 percent, but the pace of price increases has slowed. The bank said inflation, which ended 2022 at 7.2 percent, should drop to 5.4 percent this year.
“The shift in focus to economic growth comes at a time when inflationary pressures are starting to dissipate,” said Jason Tuvey, senior emerging markets economist at Capital Economics.
The bank’s forecast highlighted the prospect of blackouts for several more years. Infighting in the governing African National Congress over Eskom’s overhaul and delays in finding alternative power sources will continue to weigh on growth for the foreseeable future.
However, many South African companies are rushing to set up their own power supplies after Ramaphosa’s government removed the red tape protecting Eskom’s monopoly.
“This is a capital expenditure that requires spending, investment, and labor, but it will supply electricity,” said Thabi Leoka, an independent economist.