March 6, 2020/United Capital Research

Recently, the South African Statistical body – Statistics South Africa (Stats SA) – published the country’s GDP report for Q4-2019. According to the report, South Africa slipped into a technical recession during the quarter (second time in two years) as the seasonally adjusted and annualized  real GDP contracted for the second successive quarter (Q4-2019: -1.4% q/q  and Q3-2019: -0.8% q/q). Also, the FY-2019 real GDP growth moderated from +0.8% y/y in FY-2018 to +0.2% y/y.

Notably, of the ten industries measured by Stat SA, only the Finance (+2.3% y/y), Government (+1.7% y/y) and Personal services (+1.0% y/y) industry, grew during the year. Also, a deep look into the broad components of the economy showed that the Primary (-0.4%), Secondary (-2.9%) and Tertiary (-1.0%) components of the economy contracted during the quarter.

In our opinion, we believe that the contraction in Q4-2019 and slower growth in FY-2019 continue to reflect the negative impact of the country’s deteriorating power situation. Specifically, the inability of Eskom (South Africa’s state-owned power utility company) to meet the national electricity demand had impaired business and consumer confidence. Hence, we believe that for the economy to rebound in 2020, deliberate actions must be taken to improve the current situation of power in the country.

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