GDP misses market expectations and contracts in Q1

GDP dropped 0.1% on a seasonally adjusted quarter-on-quarter basis in the first quarter, below the 0.3% expansion logged in the fourth quarter of last year and undershooting market analysts’ expectations. On an annual basis, economic growth also lost momentum, cooling to 0.5% in Q1, compared to the previous period's 1.4% expansion.

The downturn reflected contractions in private consumption, fixed investment and exports. Domestically, household spending—which accounts for roughly two-thirds of GDP—contracted 0.3% in Q1 (Q4: +0.1% s.a. qoq), marking the worst result since Q3 2022. Moreover, fixed investment declined at a steeper rate of 1.8% in Q1, deteriorating from the 0.2% contraction in the previous quarter. Meanwhile, public consumption slid at a softer rate of 0.3% in Q1 (Q4: -0.4% s.a. qoq). On the external front, exports of goods and services contracted 2.3% in Q1 (Q4: +0.5% s.a. qoq), marking the worst reading since Q4 2022 and reflecting lower trade of pearls, precious and semi-precious stones, precious metals and mineral products. Meanwhile, imports of goods and services deteriorated, falling 5.1% in Q1 (Q4: +4.0% s.a. qoq). Overall, net exports contributed positively to the overall GDP result. From a production point of view, the deterioration was due to downturns in the manufacturing plus mining and quarrying sectors, which continued to suffer from blackouts and the railway and port crisis.

Our Consensus is for a notable rebound in GDP in sequential terms in Q2 and for growth to remain largely steady thereafter in H2; activity at the start of Q2 will be supported by a rare weeks-long streak of uninterrupted electricity ahead of the general elections on 29 May. Over 2024 as a whole, our panelists see the economy growing at a stronger pace than in 2023 on more robust private consumption growth. That said, growth forecasts are now more susceptible to revisions; despite last-minute efforts, the ANC party lost its parliamentary majority in the May elections, and was pushed to form a coalition, making future policies more uncertain than before. More positively, if congestions in ports, especially in Durban, continue to ease and load shedding doesn’t worsen, GDP growth could experience a boost.

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