Business Maverick

THAT SHRINKING FEELING

SA retail trade, mining data for March point to Q1 economic contraction – and may help explain why the lights are on

SA retail trade, mining data for March point to Q1 economic contraction – and may help explain why the lights are on
A supermarket in Centurion, South Africa. Photographer: Waldo Swiegers/Bloomberg

Retail trade data released on Wednesday – and mining and unemployment data unveiled on Tuesday – all add up to a contraction for South Africa’s economy in the first quarter of this year. This is not good news for the ruling ANC ahead of the 29 May election, but it may help explain why the rolling power cuts have been culled for now.

The retail trade sales data released by Statistics South Africa (Stats SA) on Wednesday was good and bad. 

On one hand, retail sales rose 2.3% on a year on year basis in March, well ahead of a Reuters consensus of a 0.4% increase. The early Easter and holiday shopping related to it may have helped lift sales. 

But on a seasonally adjusted basis, sales declined 0.9% in the three months to the end of March compared with the previous three months. This means the sector will detract from the first quarter (Q1) gross domestic product read, which is due for release in early June. 

That number will come out after the elections, but voters are feeling the pain of an economy that likely contracted in Q1 and saw unemployment rise. 

Data last week showed that manufacturing output tanked 6.4% year on year in March and 1% on a seasonally adjusted basis in the first three months of this year. 

Read more in Daily Maverick: Meltdown — SA manufacturing output tanks 6.4% year on year in March, raising risk of Q1 GDP contraction 

On Tuesday this week, Stats SA said mining production fell 5.8% on a year-on-year basis in March and 1.7% in Q1 of this year compared to Q4 in 2023. 

Also on Tuesday, Stats SA unveiled data showing that South Africa’s unemployment rate rose 0.8 of a percentage point in the first three months of the year to 32.9%. 

Read more in Daily Maverick: SA unemployment up to 32.9% in Q1 of 2024 just before polls

After the economy narrowly dodged a recession in Q4 of 2023, it all adds up to a likely contraction in Q1 of this year – which will mean a recession if the economy shrinks again this quarter. 

So, South African voters may be casting their ballots against the backdrop of a recession, though April’s dearth of rolling power cuts may have helped to lift the economy in Q2 – an issue we will return to shortly. 

“… domestic data releases over the past few weeks have indicated that the South African economy might be in worse shape than initially thought. Odds of an economic contraction in Q1 2024 now look more likely,” Jee-A van der Linde, senior economist at Oxford Economics Africa, said in a note on the retail trade sales data. 

It’s also conceivable that the poor shape of the economy has contributed to the brightening power situation. 

The rotational blackouts dubbed “load shedding” by the powers that be were greatly reduced in the first three months of this year compared with the same period last year, leading up to April’s stellar performance which has lasted since. 

Read more in Daily Maverick: 2024 elections

Eskom has denied that this is simply because it’s burning diesel like there’s no tomorrow ahead of the elections, and there are signs that its ageing power stations are performing better. A mild start to the autumn/winter season has probably also helped. 

But much of the improvement lies in the fact that businesses and private households have rushed to self-generate with rooftop solar and other renewable sources of energy. As my colleague Tim Cohen has noted, the private sector has largely saved the ANC’s bacon on this front.

Read more in Daily Maverick: Business has once again saved the ANC’s bacon. A cheer perhaps? 

It’s also the case that a slow-growth or contracting economy is not going to require as much power as one that is fast-growing. South Africa’s mining and manufacturing sectors both contracted in Q1, and they are power-intensive. 

This does not mean that a woeful economy alone explains the improvements in the power situation. But it is not far-fetched to suggest that it is a contributing factor, which is indeed ironic: the ANC’s own economic policy and governance failures are helping to keep the lights on in time for the elections. DM

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