S.Africa skirts recession with surprise first-quarter growth

South Africa South Africa's economy grew despite crippling power cuts.  By Phill Magakoe (AFP/File)
South Africa's economy grew despite crippling power cuts. By Phill Magakoe (AFP/File)

South Africa's economy grew slightly in the first three months of the year, confounding fears of a recession for Africa's most industrialised country, official data showed Tuesday.

Gross domestic product (GDP) increased 0.4 percent between January and March after shrinking 1.1 percent in the final three months of last year, the national statistics agency Stats SA said.

The growth came despite crippling power cuts that continue to crimp economic activity, and surpassed the expectations of many economists.

"The manufacturing and finance industries were the major drivers of growth on the supply side of the economy," Stats SA said in a statement.

"The demand side was lifted by exports, with smaller positive contributions for household, government, and investment spending," it added.

Economists at the bank FNB had said they expected a "mild recession", while others predicted growth to stagnate at around zero percent.

South Africa has been battered by a record run of electricity blackouts over the past year, due to mounting problems at the beleaguered power utility Eskom.

The outages are costing more than $50 million in lost output each day, according to estimates by the energy minister

GDP has been increasingly volatile as a result.

South Africa's economy contracted 0.8 percent in the second quarter of 2022, followed by a 1.8 percent expansion in the following quarter -- before diving back in the last three months of the year, according to revised data.

High inflation and a weakening currency have compounded the country's economic woes.

Inflation stood at 6.8 percent in April, the lowest level in almost a year and a decline from the 7.1 percent recorded in March.

But last month the central bank still raised its benchmark interest rate by 0.5 percentage points to 8.25 percent, a 14-year high.

It also forecasts that GDP will grow by just 0.3 percent this year, saying that power cuts alone would cost the economy two percentage points of growth.

The state-owned freight logistics group Transnet has also experienced maintenance troubles and other issues that have hampered exports.

But eight out of 10 industries still recorded growth in the first three months of this year, with only the agriculture and the electricity, gas and water sectors slumping, according to Stats SA.

Mining activity turned positive after "a disappointing end to 2022", and retailing and other commercial sectors also registered growth, the agency said.

But analysts at Nedbank said the "modest bounce" was "likely be short-lived" after power cuts intensified in the second quarter, "weighing on confidence, disrupting operations, driving up production costs and eroding profits and income".

"These pressures, combined with the downturn in global growth and commodity prices, will hurt production and exports even further in the quarters ahead," the bank said in a statement.