Thanda Sithole
Real GDP unexpectedly declined by 0.3% q/q in 3Q24, defying our and the Reuters consensus expectation of an expansion of 0.3% and 0.5%, respectively. The 2Q24 growth rate was also revised slightly downward to 0.3% from 0.4%, reflecting a particularly weaker performance in the agriculture, forestry, fishing, and manufacturing sectors relative to previous estimates.
On an annual basis, the economy grew by a modest 0.3%, well below forecasts of around1.2%. The quarterly contraction was primarily driven by a steep 28.8% q/q decline in the volatile agriculture, forestry, and fishing sector, which deducted 0.7 percentage points (ppts) from GDP growth. Excluding this sector, the economy demonstrated resilience, expanding by 0.4% q/q and 1.1% y/y, highlighting the relative stability of sectors less exposed to climate and biosecurity risks.
However, the agricultural sector’s ongoing weakness means that the economy has grown by just 0.4% y/y (non-seasonally adjusted) in the first three quarters of 2024. Achieving our and the consensus 1.0% growth projection for the year now appears increasingly unlikely. This tepid growth, alongside subdued inflation projections, reinforces the case for a gradual reduction in interest rates to support the cyclical recovery. Nonetheless, structural reforms remain critical to unlocking higher and more sustainable growth over the medium-to-long term.
Outlook
While the unexpected 3Q24 GDP contraction disrupted momentum, growth is anticipated to rebound in 4Q24. This recovery will likely be supported by moderating inflation, employment gains, and the liquidity injection from two-pot retirement withdrawals, which have already exceeded R35 billion. Improved confidence levels are also expected to bolster the near-term economic performance.
Despite today’s GDP outcomes posing a challenge to our 1.0% growth projection for 2024, we remain broadly optimistic about the economy’s trajectory. Growth is forecast to rise toward 2.0% in both 2025 and 2026, with further acceleration anticipated beyond 2027. This positive outlook is underpinned by continued improvements in energy availability, the stabilisation of logistics networks, and the execution of structural reforms under Operation Vulindlela Phase 2.0. Combined, these factors should drive a more robust and sustainable expansion over the forecast horizon and into the longer term.
Supply- and demand-side drivers
Besides the significant decline in the agriculture, fishing and forestry sector, declines were also recorded in the trade, catering and accommodation sector (-0.4% q/q), reflecting decreased activity in wholesale trade, motor trade and food and beverages. The transport, storage and communication sector dropped by 1.6% q/q as activity in land transport and transport support services decreased. There was a marginal decline of 0.1% in general government services amid decreased employment gains at national and provincial government as well as extra-budgetary institutions.
Growth was recorded in mining and quarrying (+1.2% q/q); electricity, gas and water (+1.2% q/q); construction (+1.4% q/q), finance, real estate and business services (+1.3% q/q), as well as personal services (0.5% q/q).
Measured from the demand side, household consumption increased by 0.5% q/q and 1.4% y/y, led by increased spending on non-durable goods and services, but growth was also recorded in durables and semi-durables. Gross fixed capital formation (GFCF) increased marginally by 0.3% q/q, rebounding from a four-quarter technical recession, largely driven by government and public corporations. Private sector GFCF was down 1.7% q/q, marking the third successive quarter of decline. Inventory drawdown amounted to R6.6 billion in 3Q24, reflecting decreases in manufacturing; electricity, gas, and water; and mining and quarrying.
Despite the decline in imports of goods and services by 3.9% q/q, real net exports of goods and services recorded a R68.3 deficit, as exports continued declining sharply by 3.7% q/q – underscoring weak external demand and domestic production. Large export decreases were recorded in pearls, precious and semi-precious stones and precious metals; vehicles and transport equipment excluding large aircraft; chemical products; base metals and articles of base metals; and machinery and electrical equipment.
Thanda Sithole, FNB Senior Economist. He writes in his personal capacity.
