SA’s growth shrank unexpectedly in first quarter with gloomy outlook forecast

Women assemble solar panels at EnerG Africa, a factory making solar panels where there are only female employees, in Cape Town in this file photo. Photo: AFP

Women assemble solar panels at EnerG Africa, a factory making solar panels where there are only female employees, in Cape Town in this file photo. Photo: AFP

Published Jun 5, 2024


An unexpectedly moribund economy was reflected in the 0.1% decline in first quarter gross domestic product (GDP), and it was likely to remain stagnant for the rest of the year barring a boost from the global economy, economists said yesterday.

“Surprising slightly on the downside, SA’s GDP print contracted 0.1% quarter-on- quarter. Weaker manufacturing, mining and construction drove much of the downward momentum on the production (supply) side, while the expenditure (demand) side witnessed a decline across all components,” said Anchor Capital’s fixed Income investment analyst, Casey Sprake.

Analysts polled by Reuters had projected a slight 0.1% increase in first quarter GDP, while the SA Reserve Bank (SARB) had projected 0.2% growth.

Last year GDP grew 0.6%, with the SARB estimating load shedding had shaved 1.5% off that. This year the SARB believes growth would be 1.2%, while the International Monetary Fund has forecast 0.9%, with the cost of load shedding estimated to fall to 0.5% of GDP.

Looking ahead, Reza Hendrickse, a portfolio manager of PPS Investments, said retail sales, manufacturing and mining production data had all been “decidedly downbeat thus far. On the positive side, load shedding seems to have eased significantly.”

The latest Absa PMI release was also tentatively positive, having breached the key 50-level, signalling the possibility of some economic expansion down the road.

However, Hendrickse said, “Consumers are likely to remain under pressure, with interest rates expected to remain elevated for the rest of the year. Any boost to the local economy will need to come from abroad, where global economic growth has remained resilient, driven by the US economy.”

Any softness in global growth may dampen South Africa’s already weak prospects.

FNB senior economist Thanda Sithole said, “This data does not alter our cautiously optimistic economic growth view, although the domestic situation remains precarious as political negotiations continue.”

Sithole said they now expected economic growth to rebound in the second quarter, supported by the absence of load shedding and potential boosts from election-related spending.

“However, the extent of the rebound may be limited by the weakness already observed in the manufacturing PMI and new vehicle sales,” Sithole said.

Professor Raymond Parsons of NWU Business School said it was concerning that gross fixed capital formation – a major driver of job-rich growth – again declined, for the third consecutive quarter, by 1.8%.

“One of the key ingredients for sustained rapid growth is a high level of fixed investment, ideally at 30% of GDP, a critical target outlined by the National Development Plan. It is currently about 15% of GDP, inadequate for South Africa’s desired economic performance,” Parsons said.

Statistics South Africa data yesterday showed that on the production side, six of the 10 industries contracted in the first quarter, with manufacturing, mining, and construction the worst performing industries, offset by positive growth in the agriculture industry.

Sprake said the construction sector shrank 3.1% in the first quarter, pulled lower by weaker economic activity related to residential buildings and construction works.

She said the agricultural sector rallied in the first quarter, expanding 13.5% off a buoyant horticulture sector. “Unfortunately, it was not enough to keep overall GDP growth in positive territory,” she said.

Sprake said they anticipated that the near-term prospects for growth would remain lacklustre.

Momentum Investments said on the expenditure side, the biggest detractor from economic growth was lower exports. However, imports decreased by more than exports and the net impact was positive on growth.

“We maintain our view that household consumption expenditure will be a bigger driver of economic growth in 2024. The consumption boost from the two-pot retirement system - effective 1 September 2024 - is estimated to be bigger in the first few months after implementation and decrease thereafter,” Momentum Investments said.

It said the improved energy outlook in 2024 would likely be witnessed through better company profit margins on the back of using diesel-powered back-up energy supply less, than when load shedding was more intense.

Momentum said they expected economic growth to tick up in the second quarter driven by no power disruptions in April and May, and easing logistics constraints.

Momentum said the outcome of discussions on the future structure of the government after the elections could impact the economic growth trajectory.