Growth numbers raise questions about outlook
Last week’s worse-than-expected official figures on the state of the economy do not bode well as SA heads into a challenging year in 2024. The market was not expecting miracles in the third quarter, with the economy expected to stagnate. Instead, it contracted 0.2%, with the agricultural sector falling sharply and most sectors showing declines. The logistics crisis is taking a huge toll, with dysfunction in the ports, rail and road networks weighing heavily on SA’s ability to trade. Load-shedding continues to weigh too.
Even the promising pickup in investment over the past year or two now seems to have halted, with investment spending falling in the third quarter. A technical recession is possible if the fourth quarter comes in negative again.
On an annual basis, the economy was 0.7% smaller in the third quarter than in the third quarter of 2022. In absolute terms it is larger than it was before the Covid-19 pandemic, but only just. Trade & Industrial Policy Strategies notes that over the past five years the economy has grown just 2% in total, while SA’s population has grown 7%. It is an environment in which living standards are falling and the government is falling ever shorter of being able to run public finances on any sort of sustainable basis.
Economists had been forecasting growth of about 0.8% for 2023. But the disappointing third-quarter GDP numbers will have many revising their predictions downwards. HSBC economist David Faulkner now sees the economy growing at just 0.5% this year.
Consensus is that 2024 will see a bounce off the proverbial low base. Huge amounts of investment are going into new renewable energy generation, in big, corporate grid-connected projects as well as household rooftop installations. That should start to remedy the power balance over time, providing support to the economy. Some are even optimistic enough to expect an end to load-shedding by the end of 2024.
The logistics crisis is also being tackled, with the private sector working hard to help the public sector and the government promising reforms. Sadly, history has taught us not to expect too much too quickly, but there should be some progress on ports and rail in 2024, which could help to unblock exports and imports and lift some of the constraints on growth.
At Eskom and Transnet, better operating performances will depend on good leadership appointments. The announcement of a new CEO at Eskom is encouraging; hopefully, the government will also make a sensible appointment at Transnet, where acting CEO Michelle Phillips is by all accounts doing a good job.
There are other reasons to expect a growth pickup in 2024. Interest rates should start to come down in the second half of the year, supporting households and investment spending. A better farming season is expected. That should get growth to the mid-1% range. But no-one is expecting SA to grow by more than 1%-2% over the next couple of years.
There are significant risks even to that. The global economy is slowing, so we cannot expect much support from external demand. Fitch Ratings last week cut its forecast for world growth to 2.1% in 2024, down from 2.9% in 2023.
The US economy has been unexpectedly resilient and the US is not expected to go into recession, as many have feared, growing by an expected 2.4% this year. But China is slowing from its belated post-Covid bounce. Fitch expects Chinese growth of just 4.6% in 2024, and for most economists this has been the year in which we finally recognised that China’s long growth miracle came to an end. Europe, too, is expected to be a drag on global growth, even though interest rates are expected to start coming down. Emerging markets will continue to outperform advanced economies. SA, sadly, will continue to lag.
SA’s uncertain political outlook poses challenges to the economic outlook, too. With next year’s election likely to see the ANC lose its majority, investors are looking closely at the possible outcomes and worrying about coalition scenarios. The uncertainty is likely to continue to weigh on the rand and on foreign investment, posing risks to inflation and interest rates.
As always, SA is not powerless and the government could do much to mitigate the challenges and enable higher growth if it implemented reforms faster and more effectively. Let’s just hope.
NO-ONE IS EXPECTING SA TO GROW BY MORE THAN 1%-2% OVER THE NEXT COUPLE OF YEARS