SA woes slam the brakes on GDP
• Economy contracts 0.2%, raising the risk of a technical recession
The economy lost momentum in the third quarter, raising the risk of slipping into a technical recession during the fourth quarter and putting heavy pressure on Transnet to fix its dysfunctional logistics infrastructure.
GDP contracted 0.2% in the three months to end-September, pulling back from two quarters of expansion, Stats SA reported on Tuesday. Second-quarter GDP growth was revised down to 0.5% from 0.6%.
The median estimate of economists in a Bloomberg survey was for a contraction of 0.3% quarter on quarter.
On a year-on-year basis, GDP shrank by 0.7%, worse than the market consensus.
The economic performance reflects multiple challenges facing businesses, chief among which is the below-par performance of Transnet, whose long-standing rail infrastructure woes have been compounded by the bottlenecks at ports, which have prevented companies from timeously getting their goods in and out of the country.
Businesses are also grappling with cost pressures of higher stages of load-shedding, although private sector investment in renewable energy is expected to improve electricity supply in the coming months.
The contraction in GDP is a political headache for President Cyril Ramaphosa, who has been accused by his biggest cheerleaders – business leaders – of being too slow in pushing through structural reforms that economists say are crucial to reinvigorating the economy.
“The big picture is that SA’s recovery from the pandemic has been among the worst in the emerging world, with GDP just 0.3% above its pre-pandemic peak,” said Jason Tuvey, the deputy chief emerging-markets economist at Capital Economics.
“The production breakdown showed that weakness in industry and construction more than offset modest growth in service sectors. There was also a slump in the volatile agricultural sector,” he said.
Low economic growth implies less tax revenue for the government to fulfil its public mandate of providing essential services — and has the potential to throw the government’s fiscal consolidation efforts off track.
The economy has also been hobbled by load-shedding, which has blighted businesses and society for more than a decade and sparked the frantic scramble for backup power.
“While load-shedding persists, we expect the intensity to have peaked this year and a gradual improvement is built into our baseline forecast,” FNB economists said in a note.
“However, today’s GDP data challenges our current-year growth forecast of 0.8%. While growth should remain below 1% this year, a gradual lift next year is envisaged, underpinned by reduced load-shedding, lower inflation and the projected interest rate relief.”
They added that targeted and accelerated economic reforms are critical to lift growth and employment, thus helping to improve the government’s fiscal position.
The manufacturing industry contracted 1.3% in the third quarter, with eight of the 10 segments measured contracting, led by food, beverages and tobacco.
Mining and quarrying shrank 1.1%, reflecting lower platinum group metals prices. Gold, other metallic minerals and manganese ore also fell.
The agriculture, forestry and fishing industries dropped 9.6%, affected by lower output in field crops, animal products and horticulture products.
The rand briefly weakened through R19/$ in late trade on Tuesday after the release of the GDP data. But the dollar was also very strong on global markets.
“For us, the weaker GDP is not surprising given SA’s structural constraints of electricity supply and logistics crises currently at play.
“Household spending is also under a lot of pressure from higher interest rates,” said Casey Delport, investment analyst at Anchor Capital.
Household consumption expenditure, which makes up two-thirds of GDP, fell 0.3% quarter on quarter.
Total gross fixed capital formation decreased by 3.4% in the third quarter.
“Household spending undershot our expectations,” Standard Bank economist Elna Moolman said. “Fixed investment also contracted, though this was unsurprising following the rebound in the previous quarter. The GDP weakness was quite broad based, with half of the sectors contracting from the previous quarter.”