Load shedding and GDP forecast

Rotational load shedding was raised to Stage 6 on June 28, with more than 17 000MW of capacity unavailable. We expect Stages 4 to 6 load shedding to continue this week.

Before Stage 6 load shedding, the grid was already under pressure. The frequency of Stages 2 and 4 rotational load shedding recorded a meaningful increase in May and June. In 2021, 49 days of load shedding were recorded, amounting to 2 521GWh. This amounts to ~2.25% of total electrical energy which could not be delivered. By mid-2022, nearly 90% of 2021’s level or ~2 278GWh had already been reached. We estimate this could reach ~4.5% in 2022, which holds implications for growth.

Short-term outlook

Load shedding is likely to continue for the next week or so before the electricity system could start to stabilise from mid-July.

Important dates:

4/7: Trade unions to respond to Eskom’s revised wage offer. However, several weeks of maintenance will be required to restore capacity to pre-strike levels. The quality may not be the same as before the strikes because of the delays in maintenance.  

13/7: Risk Mitigation IPP Procurement Programme of 2 000MW – Environmental approval response on Karpowership 1 200MW

15/7: Koeberg unit 2 with 930 MW back online

Revision to ICIBs 2022 GDP growth forecast

The direct effect on the economy from load shedding is determined by the duration and intensity. The indirect impact stems from the hit on confidence which could lead to a wait-and-see attitude from households and companies. In 2019, the SARB estimated Stage 4 load shedding costs the economy R773m per day. Stage 6 and the cumulative effect on lost productivity could be more (the media has mentioned R1.5bn or more daily). We estimate the impact of load shedding could lower our baseline GDP forecast of 2.0% in 2022  by 0.1ppt in 2Q 22.

Moreover, a high level of uncertainty is attached to the growth outlook in 3Q 22, in the absence of high frequency indicators. South Africans now had to contend with a host of adverse developments,  i.e., a surge in the fuel price (today saw the announcement of an increase in the fuel price of R2.56/l on Tuesday night), utility rate increases (electricity 7.% and water 9.7% in CoJ), food prices and interest rates (the SARB is front loading rate hikes and a 50bp rate hike is expected at the July MPC meeting).  

The risk of a contraction in growth in 3Q 22, which could see the economy in recession, has increased. Our GDP forecast for 2022 is 1.9%.