Persistent and deepening electricity outages in South Africa are wreaking economic havoc. Almost half of generating capacity was offline this month, triggering severe “loadshedding”. Output in energy-intensive sectors – such as mining and manufacturing – remains below pre-pandemic levels. And other parts of the economy are struggling too, with warnings issued by the agricultural and manufacturing sectors as well as retailers. That raises the threat of bad loans developing on banks’ balance sheets. Loadshedding is not only depressing activity, but also fuelling price pressures. The Reserve Bank calculated that power cuts will push up inflation by half a percentage point this year, which may prove to be a conservative estimate. All in all, there’s no wind in South Africa’s economic sails and we think GDP will fail to expand in 2023.
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