‘Weak, weak, weak’ — SA economy contracts 0.1% in Q1, but economists see growth in Q2

4 Jun 2024

South Africa’s moribund economy contracted 0.1% in the first quarter of this year after growing by a revised 0.3% in Q4 of 2023 (up from 0.1%). That raises the prospect of a recession if it contracts again this quarter, but economists see that being avoided on the back of the improved power situation.

‘Weak, weak, weak,” is how Razia Khan, chief Africa economist at Standard Chartered Bank in London, described the Q1 gross domestic product (GDP) data released on Tuesday by Statistics South Africa (Stats SA).

“Even with the benefit of a super-favourable base (read: growth was dismal a year before), everything was still weak, weak, weak. Surprising growth in agriculture – but a dire reading across other sectors,” Khan told Daily Maverick.

Agriculture was the one green shoot in a parched economic landscape, with output rising a robust 13.5% on a quarter-on-quarter basis.

Stats SA said this was “spurred on mainly by a buoyant horticulture sector that recorded a rise in the production of fruit”.

But the rest of the economic picture painted by the data was bleak.

Manufacturing was the biggest drag, declining 1.4%, which translated into the sector dragging the overall GDP number down by 0.2%. Mining output fell 2.3% in the quarter, while construction maintained its downward spiral with a 3.1% contraction – a sign of poor confidence.

All three sectors are labour intensive, which helps to explain why the unemployment rate rose to 32.9% in the quarter from 32.1% in the previous quarter.

In another sign of low confidence, gross fixed capital formation – which includes investment in infrastructure and fixed assets – declined for the third straight quarter, to 1.8%.

Growth in GDP (%).

A number of factors explain the economy’s poor performance in Q1.

The rolling blackouts, dubbed load shedding by state-run power utility Eskom, intensified in Q1 of this year compared with Q4 of 2023. And the upward revision of Q4 growth to 0.3% from 0.1% created a slightly higher base for this quarter’s read.

When the economy is struggling like this, a decimal point or two can mean the difference between growth or a contraction.

If the economy is contracting again this quarter, that would mean South Africa is falling into a recession, and that voters cast their ballots against this backdrop in Q2.

But economists generally see a rebound to growth this quarter, which ends on 30 June, though the economy is hardly shooting the lights out.

“If you look at the second quarter now it is expected to have higher growth than previously expected, load shedding has been suspended, Transnet has seen a reduction in the congestion and overall the data that is coming in is showing good outcomes,” Investec chief economist Annabel Bishop told Daily Maverick.

This view was echoed by other economists.

“No recession – Q2 on track to be positive,” Khan said.

Still, some of the numbers that have come out for this quarter are worrying.

The Absa Purchasing Managers’ Index (PMI), a barometer of confidence in the manufacturing sector, tanked in May to 43.8 points from 54.0 in April, bringing it back into negative territory.

But the PMI is volatile and is not based on hard data.

New vehicle sales, meanwhile, sank 14.2% year-on-year in May, according to Naamsa data, a further signal that consumers remain under pressure.

“Although not our base case, the latest quarterly contraction opens the door for a possible economic recession in Q2 2024. There have not been any scheduled power outages since late March, but disappointing new vehicle sales thus far for Q2 show that demand remains weak, and it is unlikely that economic activity would have picked up strongly ahead of the elections,” said Jee-A van der Linde, senior economist at Oxford Economics Africa.

The bottom line is that the economy may avoid a recession this quarter, but it remains “weak, weak, weak”. DM

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