Bank of America says GDP to grow 2% if Eskom maintains momentum

Bank of America says SA’s economy could grow by about 2% in the medium term if Eskom maintains the momentum and keeps the lights on for the rest of the year.

The lender said in a research note it expects government finances to improve due to a better GDP outlook after strides in ridding the country of load-shedding.

“Electricity supply has improved since April, culminating in over 80 days of no power cuts. If sustained for the rest of the year, the enhanced power supply would represent a structural improvement. GDP growth could increase towards 2% over the medium term.

“Stronger GDP growth should drive budget revenue growth higher. An improving fiscal outlook is likely to result in tighter asset swap spreads over the medium term,” the bank said.

“Around 41% of total borrowing requirements for 2024 have been financed in SA, but overall the fiscal story is likely to improve due to better electricity supply and, hence, stronger GDP growth together with higher tax revenues.”

SA has gone more than 100 days without rolling power cuts, providing a boost to the economy and saving businesses that have had to spend millions of rand in fuel to keep operations going.

Eskom on Sunday announced the successful transfer of Kusile power station’s unit 5 to commercial operation, adding a further 800MW to the national grid.

Bank of America welcomed the reappointment of Enoch Godongwana as finance minister in the recently announced executive of the government of national unity.

“His fiscal plan could benefit from potentially strong economic growth due to reduced power cuts.”

The reappointment of Godongwana has been welcomed by the market as it signalled the government will stick to its fiscal consolidation plans — a boost for the markets.

This is particularly important as public debt stood at R5.2-trillion (75% of GDP) at the end of the first quarter, with debt service costs crowding out investments in key areas.

“The government expects a main budget deficit of 4.3% of GDP in 2024/25 and 3.9% in 2025.” Bank of America expects deficits of 4.5% and 4.1%, respectively.

“Our all-in deficit including Eskom support is 5.3% in 2024/25, 5.5% in 2025/26 and 4% in 2026/27. And 2026 could be the turning point with no further Eskom support, leading to enough of a primary surplus to ensure debt stabilisation (a year later than the Treasury baseline).” 

Investec in its base-case scenario projects the SA economy will grow by 2% in the 2027/28 fiscal year.

“The base case is characterised by the view that economic growth lifts above 2% by the end of the five-year period on sufficient domestic policy support measures, while global financial market risk sentiment is neutral to positive,” Investec said in its latest annual report.

“The impact of load-shedding at an average of less than stage 4 is included in the base case for 2024, and lessening in subsequent years as more generating capacity comes on line.

“A transition to renewable energy and slow move away from fossil fuel usage occurs and measures to alleviate the impact of climate change on the economy are modestly implemented. Inflation moderates on base effects and lower global inflation.”

khumalok@businesslive.co.za