Bank of America Merrill Lynch warns of recession in South Africa over Eskom

By Colin McClelland

South Africa will face another recession by year’s end if the Eskom load shedding debacle isn’t remedied, according to forecasts by Bank of America Merrill Lynch.

GDP growth will plummet by year’s end and signal a recession, which is two quarters of sub-zero growth, Michael Jacks, head of equity research in Johannesburg at Bank of America Merrill Lynch, told reporters on March 20 in the city’s Rosebank area.

“If stage four load shedding has to continue for the rest of the year, GDP growth will likely be negative and it will be question of how negative,” Jacks said. “Definitely there is a risk of recession.’’

The bank may have to adjust its forecast of a 1.3% growth in gross domestic production this year, up from 0.8% last year, partly based on the election of Cyril Ramaphosa to head the ruling African National Congress party last December. GDP growth may hit 1.7% in 2020, the bank said.

However, that optimism has been replaced by worries over how much impact Eskom’s load shedding will have on the economy.

What’s needed are structural reforms and most international investors are holding off investing in South Africa until after national elections in May when President Cyril Ramaphosa could have a stronger mandate to fix the country’s problems, John Morris, head of South African strategy at Bank of American Merrill Lynch, told the same briefing.

The reforms could be “easy” ones like streamlining the visa process to boost the tourism industry, an auction of airwave spectrum to broaden and cheapen internet access through competition, Morris said. Other needed reforms, such as in labour relations and restructuring Eskom will take longer, he said.

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