SA avoids recession but outlook bleak
SA’s economy saw a small uptick in the three months to the end of December, narrowly escaping a technical recession. But structural constraints, together with a high-cost environment, continue to weigh on growth prospects.
Data released by Stats SA on Tuesday shows GDP grew a marginal 0.1% in the fourth quarter, following a 0.2% contraction in the third quarter.
But it missed market forecasts of 0.3% growth, reflecting the effect of energy constraints and the logistical inefficiencies on the production side of the economy.
For the year as a whole the economy grew 0.6% after an increase of 1.9% in 2022.
The low-growth numbers are bad news for the ANC as its inability to meaningfully grow the economy may cost it dearly in the national and provincial elections in May.
Domestic demand is expected to weaken even further in the first half of the year as the full effect of the sharp rise in interest rates takes effect and continues to strain household finances, weighing on consumer confidence and demand.
On the global front, weaker demand and lower international commodity prices will continue to undermine production across sectors and these pressures will cap the upside for services over the first half of the year.
North-West University professor Raymond Parsons said the 0.6% economic growth for 2023 suggested the economy was likely to see growth of only about 1% this year. This is more or less in line with“most recent growth forecasts but is still simply too low to meet SA’s socioeconomic challenges,” he said.
Jee-A van der Linde, senior economist at Oxford Economics, said SA’s supply-side constraints would continue to undermine growth for most of the year, with the full effects of tighter monetary policy likely to weigh on consumer pockets during the first half of 2024.
“We maintain our view that SA entered 2024 with hardly any economic momentum and real GDP growth is expected to pick up only modestly to reach 0.7% this year compared to the consensus forecast of 1.2%.”
Stats SA data shows the economic rebound in the fourth quarter was broad-based, with six out of 10 sectors underpinning growth.
Mining activity was up 2.4% quarter on quarter, pushed higher by stronger production for platinum group metals, chromium ore, coal and diamonds. Activity in the manufacturing sector experienced a mild recovery, expanding 0.2% after a decline of 1.1% previously.
Electricity, gas and water recorded a second consecutive quarter of positive growth, expanding 2.3%.
Stats SA said the rise in electricity production and consumption reflected positively in the GDP numbers, with SA having experienced fewer days of loadshedding in the fourth quarter. There were 63 days of power outages compared with 91 days
in the third quarter.
On the negative side, the agricultural, forestry and fishing sector contracted 9.7% quarter on quarter, following a downwardly revised 11.7% contraction in the third quarter.
Demand-side growth drivers show that after a two-quarter technical recession, household consumption expenditure grew 0.2% quarter on quarter, reflecting higher spending on durable goods and services.
The decline in fixed investment, which contracted 0.2% after a sharp 3.8% drop in the third quarter, underscoring a 0.4% quarterly decline in investment by general government and 1% by public corporations.
Fixed investment spending by private business enterprises was flat, after a downwardly revised contraction of 3.4%.
FNB senior economist Thanda Sithole said Tuesday’s data had no bearing on FNB’s medium-term growth prognosis.
“We maintain the view that economic growth bottomed out last year. We anticipate a gradual improvement, particularly as the load-shedding crisis eases, driven by reform-triggered private sector embedded generation and rooftop solar installations over the past year,” Sithole said.