An economy in the doldrums
South Africa misses a recession by the skin of its teeth
Bleak GDP figures show that though the South African economy has narrowly avoided slipping into a recession, it stagnated over the past year, posting subpar growth of just 0.6% for 2023 as a whole.
The economy grew by a below-consensus 0.1% quarter on quarter in the final quarter of last year, according to Stats SA, after having contracted by 0.2% in the third quarter. This means South Africa missed a technical recession (two quarters of negative growth) by the skin of its teeth.
The rate of growth has slowed dramatically since the 2021 Covid rebound. The economy contracted by 6% in 2020 due to the pandemic, then snapped back to grow by 4.7% in 2021. But since then it has stumbled, posting real GDP growth of 1.9% in 2022 and just 0.6% in 2023.
In rand terms, real GDP of R1.158-trillion achieved in the final quarter of last year is slightly lower than the R1.16trillion peak reached in the third quarter of 2022. This puts us roughly back to where we were at the pre-Covid peak of R1.15-trillion at the start of 2020 (see graph).
On an annual basis, the transport, storage and commuaccommodation nications sector grew the fastest, at 4.3%, in 2023, contributing 0.3 of a percentage point (pp) to annual growth of 0.6%.
It was also the best performer in the fourth quarter of 2023, achieving growth of 2.9% q/q — something BNP Paribas chief regional economist Jeff Schultz says was “probably helped by ramped-up road transportation as freight rail pressures climbed on Transnet’s problems”.
By far the worst performer of 2023 was the agriculture sector, which contracted by 12.2% year on year. It had to contend with avian flu, footand-mouth disease and African swine fever as well as port delays, deteriorating rail and road infrastructure, worsening municipal service delivery and persistent load-shedding.
Even so, Agriculture
Business Chamber of South Africa chief economist Wandile
Sihlobo says he didn’t expect the sector’s annual performance would drop as sharply as it did.
Agriculture was also the worst performer in the fourth quarter, contracting by almost 10% q/q. This dragged the primary sector (which includes mining) down by 2% q/q.
By contrast, the secondary sector was up 0.2% q/q in the fourth quarter, kept afloat by manufacturing (up 0.2%) and electricity, gas and water (up 2.3%). That the intensity of load-shedding halved clearly provided some respite for the more energy-intensive parts of the economy.
Another poor performer was the trade, catering and sector. It contracted by 2.9% in the fourth quarter, making it the biggest drag on fourth-quarter growth as it is much larger than the agriculture sector.
It was also a big drag on 2023 growth as a whole, shrinking by 1.7% and subtracting 0.2pp off the annual growth rate.
Schultz says this is indicative of increasingly challenging domestic demand conditions as consumers continue to struggle under the weight of still high interest rates. The only positive is that this should
bode well for a fall-off in inflation this year.
“The GDP data is backwardlooking and is therefore unlikely to have a big impact on monetary policy,” he says.
“But the implication of still lacklustre consumption plus higher stock builds is supportive of a view that faster disinflation than the Reserve Bank expects is likely to take hold in 2024.”
BNP expects the first rate cut by the Bank in May, with a total of 100 basis points in cuts during 2024.
Viewed from the expenditure side, the economy grew by 0.7% in 2023 compared with 1.9% in 2022.
Gross fixed capital formation was a star performer over 2023 as a whole, growing by 4.2% y/y, thanks partly to robust fixed investment into green energy solutions by the private sector.
However, it turned negative in the final two quarters of last year after seven quarters of consecutive expansion.
Household final consumption expenditure, which makes up about two-thirds of GDP, managed to eke out 0.7% growth y/y and contributed 0.5pp to whole-year growth. The main support came from expenditure on restaurants and hotels (up 20.3% y/y), health (up 3.6%) and clothing and footwear (up 5%).
Even so, this is a significant slowdown from 2022, when household consumption expenditure grew by 2.5% and contributed 1.6pp to wholeyear growth.
The deterioration is nevertheless unsurprising, given the continued rise in household debt service costs, the ongoing decline in credit growth and lacklustre private sector jobs growth.
The sluggish consumer outlook will likely persist until inflation falls off more meaningfully and the Bank begins to cut interest rates.