DURBAN, SOUTH AFRICA – APRIL 16, 2022: Large amount of debris in Durban harbor after heavy rains, mudslides, rains and winds in Durban. The harbor serves as a support for the economy of the city of Durban.

RAJESH JANTILAL / AFP via Getty Images

South Africa’s economy gained momentum in the first quarter of the year, but historic floods in the key province and the threat of an unprecedented power outage are hampering its recovery.

The port city of Durban and the wider province of KwaZulu-Natal in eastern South Africa were besieged in April by the country’s largest flood in decades, killing hundreds and halting cargo operations in Africa’s busiest sub-Saharan port.

Production PMI Absa / BER – in March soared to a record high of 60.0 – in April fell to 50.7, the lowest figure since the riots since the arrest of former President Jacob Zuma last July.

KwaZulu-Natal, South Africa’s second most populous province, has also been the center of the country’s biggest riots since the end of apartheid.

The consolidated PMI S&P Global also fell to a four-month low, and in a note last week, Capital Economics stressed that high-frequency data shows that the resumption of mobility has stalled.

According to JPMorgan economists Stambis Nkalanga and Sonny Keller, the figures for the first quarter paint a mixed picture, but show quarterly GDP growth with seasonally adjusted 3.5%.

However, the sad April PMI poses a risk of lowering JPMorgan’s forecast by 1.5% of GDP for the second quarter. Along with the global background of the war in Ukraine, rising inflation and the fight against supplies in China, South Africa is also dealing with internal shocks from floods and electricity rationing.

Much of the decline in PMI production was focused on port activities and production in KwaZulu-Natal, where production activity fell from 60.5 in March to 39.6 in April.

Load reductions – deliberate power outages in parts of the grid to prevent congestion – have increased significantly in April, and power outages are projected to exceed the already significant numbers seen in 2021 this year.

JOHANNESBURG, South Africa: On June 9, 2021, residents of Sauet picket near the entrance to the Eskom state offices in Megawat Park in Midrand, near Johannesburg, due to constant power outages. On June 9, 2021, Eskom announced that it would introduce power outages across the country due to rising consumption with the onset of cold and breakdowns at two power plants.

Photo by PHILL MAGAKOE / AFP via Getty Images

Although floods have largely subsided, power outages are a constant problem for South Africa’s economy.

Eskom’s electricity availability ratio, which measures available electricity as a fraction of the maximum amount of electricity that could be produced, has remained at a record low in recent weeks, said Jason Tuvi, Capital Economics’ senior economist for developing countries.

Minister of State Enterprises Provin Gordhan warned that Eskom could resort to the 8th stage of load disconnection, which would result in a power outage of 12 hours a day to prevent a complete collapse of the country’s power grid.

“Some shocks, such as the floods, are clearly beyond the government’s control, but even without them, recovery will continue as long as the problems affecting the electricity sector remain unresolved,” Tuvi said.

The International Monetary Fund forecasts real GDP growth in South Africa, adjusted for inflation, by 1.9% in 2022.

Eskom on Thursday announced the implementation of the 2nd phase of the load reset from 17:00 to 22:00 local time.

“With the onset of winter, demand has increased, and this will lead to capacity constraints throughout this period, especially in the evening and morning peaks. Unfortunately, this usually requires a reduction in the load in the evening peaks,” – said in a statement.

Eskom reiterated that resetting the load is “the last resort to protect the national grid,” and urged South Africans to continue to “save” electricity, especially early in the morning and evening.

A reduction in Q2 is possible

The government has declared a state of natural disaster in response to the flood and has begun efforts to repair the damage.

“However, we expect the April roar to be lifted more slowly than the rapid rebound seen after last July’s unrest, given the damage to road infrastructure and delays in ports,” Nkalanga and Keller of JPMorgan said in a statement. last research note. .

“Meanwhile, energy availability has declined significantly this year, increasing the risk of prolonged power outages, while consumer resilience, which is likely to have led to GDP growth in the first quarter, should disappear this quarter due to declining purchasing power.”

Against this backdrop and the South African economy’s sensitivity to changes in external market conditions, including global supply chain problems, a potential slowdown in China and the war in Ukraine, JPMorgan sees “increased risk of slowing GDP growth or even cuts this quarter.”

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