South Africa: GDP declines at steeper-than-expected rate in Q3
GDP contracted 0.2% on a seasonally adjusted quarter-on-quarter basis in the third quarter, below the 0.5% expansion tallied in the second quarter. Q3’s reading marked the worst since Q4 2022.
Domestically, household spending contracted 0.3% in Q3 (Q2: -0.2% s.a. qoq), marking the steepest decline in two years. Additionally, fixed investment contracted 3.4% in Q3 (Q2: +3.8% s.a. qoq), marking the worst reading since Q2 2020. Meanwhile, government consumption growth was the slowest since Q2 2020, expanding 0.3% (Q2: +1.8% s.a. qoq).
On the external front, exports of goods and services increased 0.6% on a seasonally adjusted quarterly basis in the third quarter, which matched the second quarter’s reading. Conversely, imports of goods and services deteriorated, contracting 8.6% in Q3 (Q2: +3.2% s.a. qoq), marking the worst reading since Q2 2020. As such, the external sector contributed 2.9 percentage points to the overall reading, preventing a steeper decline.
The quarterly GDP decline surprised markets on the downside. The infrastructure—port and rail—crisis added insult to injury for the power supply, with blackouts lasting for as long as 10 hours a day, hitting activity in turn. More positively, the unemployment rate decreased in Q3—although it remained one of the highest in the world—and inflation averaged below Q2 in the quarter.
On an annual basis, GDP contracted 0.7% in Q3, contrasting the previous period’s 1.5% increase. Q3’s reading marked the sharpest downturn since Q1 2021.
The economy is expected to return to growth in Q4 2023, largely due to a favorable base of comparison. However, in 2024, sequential growth should gain steam.
Analysts at the EIU commented on upside risks to GDP growth in 2024:
“A key boost to growth in 2024 will be a gradual decline in crippling electricity shortages as new private-sector renewable energy generation comes on stream, leading to fewer instances of major power cuts and less disruption to business operations. A concurrent easing in transport bottlenecks will reinforce the positive trend, although there is little prospect of logistics and power-supply constraints being eliminated in 2024.”