The rise in the annual consumer price inflation from 7,0% to 7,1% in March was contrary to market expectations, which had been that the consumer price index (CPI) might by now have shown a modest decline to about 6,7%.

According to Prof Raymond Parsons, economist from the North-West University (NWU) Business School, food prices are the main culprit. “The rate of inflation at 7,1% therefore remains well above the target range of 3% to 6% of the South African Reserve Bank (SARB).”

He says that as several analysts had already pencilled in a further rise of 25 basis points (bsp) in interest rates at the next Monetary Policy Committee (MPC) meeting in May on the basis of their expected lower rate of inflation, it is now even more likely that the MPC will continue to take a hawkish line then.

“This must be seen against a background of the SARB having now raised borrowing costs by a cumulative 425 bsp since the interest rate-raising cycle commenced in November 2021. The repo rate is now at its highest since 2010.”

Prof Parsons says in assessing the economic data available in its forthcoming May meeting – and in deciding on yet higher interest rates – the MPC will also need to allow for the overall lag effects of previous interest rate hikes. These usually take 12 to 18 months to have their full impact on the economy.

According to Prof Parsons, higher borrowing costs are not the only factor influencing the economic and business outlook. “There are whirlpools on both sides, not on one side only.”

He explains that the red lights are also now flashing even more strongly for South Africa’s growth outlook. “Widespread concern and uncertainty have mounted about the further negative economic and business impact of Eskom’s present persistent Level 5 and 6 rolling blackouts. The latest intensified Eskom load-shedding regime has raised the risk that the economy may now have moved into a technical recession, in other words, two successive quarters of negative growth. This is the cumulative outcome of these and other developments in the recent past.”

Prof Parsons says the energy challenge has now nonetheless been identified as the biggest single threat to South Africa’s economic performance. “Against the background of a -1,3% GDP growth in Q4 2022, combined with a series of mainly negative high-frequency economic data in Q1 2023, it is therefore now probable that the recent devastating rolling blackouts have inevitably tilted the balance of risks towards a technical recession in South Africa.”

“The latest Nedbank Guide to the Economy also says the chances of slipping into a technical recession, ‘are high’. This would confirm the recent weak GDP growth forecasts for 2023 as a whole by, for example, the IMF (0,1%), the SARB (0,2%), Fitch (0,2%) and Nedbank (0,2%). The risk of a ‘stagflation’ scenario emerging also exists.”

According to Prof Parsons, these scenarios inject much more urgency into the electricity situation. The amelioration and reversal of the highly disruptive costs being imposed on the economy by aggressive load-shedding, especially as winter approaches, therefore requires urgent short-term measures that will help to keep load-shedding to more manageable levels in the months ahead.

“The short-term action plan to relieve the acute stringency of persistent rolling blackouts promised by the Minister of Electricity, Kgosientsho Ramokgopa, needs to be announced soon and

implemented rapidly. This will also enable businesses and consumers to plan better for an inevitably difficult period ahead.”

Prof Parsons says there needs to be transparent, coordinated and consistent communication around whatever emergency steps are to be taken so as to stem the loss of confidence that is now seriously affecting both businesses and consumers.

“The issue of confidence remains paramount. Restoring confidence is half the battle now for policymakers as they seek to action agreed solutions to the energy challenges. Negative trends can be reversed and ‘rising tides’ can be turned only if sensible remedies are expeditiously and effectively implemented in collaboration with the private sector.”