Decline in GDP unexpected and disappointing – economists

South Africa’s GDP for the third quarter showed that economic growth contracted by 0.3%, mainly due to a significant quarterly decline in agriculture, while transport, trade, and government services also contributed to the contraction.

Economists are shocked by the decrease because they expected economic growth to pick up after the formation of the government of national unity.

Agriculture was the main laggard, with the sector contracting by 28.8% and detracting 0.7 percentage points from the country’s gross domestic product (GDP). Jee-A van der Linde, senior economist at Oxford Economics Africa, says this was primarily due to decreased economic activity in field crops as a result of dry weather.

“Aside from the quarterly dip in the transport and trade sectors and the substantial decline in agriculture, the performance of the rest of the economy was broadly in line with our expectations of a gradual improvement.

“Although the South African Reserve Bank commenced its easing cycle in late September with a 25 basis points rate cut, high interest rates would have still weighed on consumer demand during the third quarter, and that should change over the coming quarters.”

He says the modest uptick in third-quarter investment is consistent with the cautiously optimistic mood that has taken hold since the formation of the Government of National Unity (GNU).

“However, the latest numbers necessitate a downward revision of South Africa’s 2024 GDP growth forecast, which means that the 1.0% growth rate we pencilled in for 2024 will likely be halved. We still believe that the South African economy will follow a gradual upward trajectory in the near term.”

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GDP decline was unexpected and disappointing

Prof Raymond Parsons, economist at the NWU Business School, says the unexpected and disappointing GDP growth figures confirm how much South Africa’s growth prospects remain vulnerable to negative factors, such as adverse weather conditions, weakened exports, and other lagging sectors.

“The negative economic and other factors in the third quarter clearly outweighed the positive ones. To the extent that tough climatic circumstances have made agriculture the largest negative contributor to lower growth, there is potential for a future turnaround if weather conditions improve sooner rather than later. South Africa’s economic recovery is evidently slow and uneven.

“The latest growth data suggests that the forecasts of already modest GDP growth in 2025 and beyond may have to be revised. The clear message of the third quarter GDP figures is nonetheless to reinforce the need for both the public and private sectors to urgently expedite the implementation of growth-friendly economic reforms.’

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GDP decline shows economy not out of the woods yet

Crystal Huntley, Johannes Khosa, and Nicky Weimar, economists at the Nedbank Group Economic Unit, say the contracting in GDP by 0.3% was below their and the market’s expectations of an increase of 0.5%. Compared to the same quarter a year ago, the economy grew by 0.3%, the same as in the second quarter.

“Today’s GDP outcome suggests that the economy is not entirely out of the woods yet. On the upside, the most significant weakness came from agriculture. Excluding agriculture, the economy grew by 0.4% compared to the previous quarter.

“Consequently, we still expect the economy to recover in the fourth quarter before strengthening and broadening throughout 2025. The boost will likely come from continued improvements in consumer demand as inflation remains subdued and interest rates start to decline more meaningfully, bolstering real incomes and lowering borrowing costs.”

They say an added boost could also come from households’ access to contractional savings enabled by the two-pot retirement system. “However, slower government spending, a modest fixed investment recovery, and the persistent drag from net exports will likely contain the boost from more robust consumer spending to GDP over the fourth quarter.”

Altogether, they forecast GDP growth of around 0.5% in 2024 and 1.5% in 2025.

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Achieving 1% growth this year now increasingly unlikely

Thanda Sithole, senior economist at FNB, says the unexpected decline defied FNB’s expectation of 0.3% growth as well as Reuters’ consensus expectation of 0.5%. “The growth rate for the second quarter was also revised slightly downward to 0.3% from 0.4%, reflecting a particularly weaker performance in the agriculture, forestry, fishing and manufacturing sectors compared to previous estimates.

“The agricultural sector’s ongoing weakness means that the economy has grown by just 0.4% (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.”

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GDP expected to rebound in fourth quarter

Sithole says while the unexpected GDP contraction disrupted momentum, growth is anticipated to rebound in the fourth quarter. 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 increase toward 2.0% in 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.”

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Decline in GDP due to agriculture as a result of drought

Kulani Siweya, chief economist at AgriSA, says at this stage the data calls for further analysis, but AgriSA is aware that drought plagued the production of field crops such as maize, soya beans, wheat, and sunflowers, while adverse weather conditions also hindered the production of subtropical fruits, deciduous fruits, and vegetables in parts of the country.