GDP for second quarter: economists expect uptick after contraction

After South Africa’s Gross domestic product (GDP) contracted in the first quarter of 2024, economists expect an uptick in GDP for the second quarter to be announced on Tuesday. this is after load shedding was suspended, although logistics remains a problem.

Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research, says after the unexpected contraction in the first quarter, activity is expected to have rebounded in the second quarter.

“Still, despite a sustained absence of load shedding, we expect an expansion of just 0.4% compared to the first quarter for gross domestic product (GDP). This is largely based on the available high-frequency data and slightly below what we expected at the beginning of the quarter.

“Logistical challenges remained a drag, while the BER’s business surveys and PMI for May and June suggest that much of the demand and as such activity, was held back amid uncertainty about the election outcome and composition of the new government.”

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Nedbank economists expect that GDP turned the corner

Crystal Huntley and Nicky Weimar, economists at the Nedbank Group Economic Unit, also say the economy likely turned the corner in the second quarter. “High-frequency statistics reflect a feeble uptick in economic activity. The improvement reflects base effects, better operating conditions and a weak but positive response in demand to falling inflation. Altogether, real GDP is forecast to grow by 0.4% compared to the first quarter.”

They credit the absence of load-shedding and lower inflation for the uptick in GDP. “We view the risks to our GDP forecast for the second quarter as relatively balanced. Upside risks to domestic trade, transport, communications and government services will likely counter the downsides to agriculture and finance. Agriculture remains the wildcard, as lower summer crops will be a drag, but these could still be offset by higher value-added from horticulture and animal farming.”

Despite mixed performances in the second quarter, they believe the worst of the downturn is probably behind us. “We expect the economy to fare better in the second half of the year. The main boost will come from domestic demand, supported by firmer consumer confidence, a recovery in real household incomes driven by lower inflation and lower debt services costs as interest rates ease.”

However, they point out that operating conditions remain challenging and production costs are high. “These factors will continue to weigh on producers and exporters. South Africa’s elevated cost structures, underlying inefficiencies and significant infrastructure constraints severely limit our producers’ ability to exploit a global upturn fully. All told, we still expect growth of 0.9% in 2024, up slightly from 0.7% in 2023.”

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FNB economists believe the economy rebounded

FBN economists Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, say the weakness in the first quarter was broad-based, with six out of ten sectors contracting. Despite mixed high-frequency data during the second quarter, we maintain our view that the economy rebounded.

“We estimate GDP growth of between 0.2% and 0.4%, supported by increased activity in the manufacturing, trade and utilities sectors. Although notoriously volatile, the agricultural sector likely contributed positively to economic growth, driven by increased activity in horticulture and to some extent, field crops.”

They point out that the high interest rate environment continues to support the financial services sector, albeit to a lesser extent due to significant constraints on consumers. “Overall, economic growth likely remained subdued in the first half of the year, expanding by 0.4% compared to the corresponding period last year, based on our 0.3% year-on-year estimate for the second quarter.”