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South Africa avoids first-quarter recession, but outlook grim.

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On Tuesday, data showed that South Africa narrowly avoided a recession in the first quarter, but economists and analysts warned of major growth-crippling challenges for the rest of the year.

Africa’s most industrialized economy is experiencing its worst power crisis ever, with up to 10 hours of rolling electricity cuts due to Eskom’s coal power station breakdowns.

In the first three months of 2023, the economy grew 0.4% quarter-on-quarter and 0.2% year-on-year.

“It doesn’t matter,” said Old Mutual Invest senior portfolio manager Arthur Karas. “South African entrepreneurs will tell you things are very difficult.”

Eight of 10 Stats SA-tracked industries grew in the first quarter, with manufacturing, finance, real estate, and business services leading the way with 1.5% and 0.6% growth, respectively. Agriculture, forestry, and fishing shrank 12.3%.

Statistician-General Risenga Maluleke said food and drinks manufacturing did well partly because it used less electricity.

Analysts and economists told Reuters that investments in renewable energy and power-cut mitigation had allowed businesses to operate. Companies have avoided layoffs. They expect second-quarter growth to slow.

“It’s just giving us a bit of a cushion to the downside,” said Stanlib asset manager chief economist Kevin Lings, who expects negative GDP growth in the second and third quarters.

“I think (companies) are treading water… Big decisions aren’t made.”

‘OUTLOOK BLEAK’

After a contraction in the fourth quarter of 2022, negative growth in the first quarter of this year would have put South Africa into a technical recession, which is a two-quarter drop in GDP.

However, Bureau for Economic Research economist Hugo Pienaar said Tuesday’s data offer little comfort.

“You contracted by a revised 1.1% in the fourth quarter and grew by 0.4%. “So you haven’t regained ground,” he said.

The central bank predicts 0.3% economic growth in 2023, with swinging power cuts hurting businesses of all sizes. Eskom warns that winter electricity outages may worsen. IMF forecasts 0.1% growth.

Tight fiscal and monetary policy, global economic headwinds, and power cuts will plague 2023. Consumers are increasingly stressed.

According to the National Credit Regulator, more South Africans are applying for credit, but 69% are rejected.

Food manufacturing grew in the first quarter, but retailers are warning of huge price pressures that could be passed on to consumers.

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