Not much hope for GDP growth in first quarter – economists

Economists do not have much hope for GDP growth in the first quarter of the year and say economic growth could even have stagnated or contracted based on industry figures released so far.

Crystal Huntley and Nicky Weimar, economists at the Nedbank Group Economic Unit, say the uptick in load shedding over the quarter negatively affected the more energy-intensive mining, manufacturing and construction sectors.

“The downturn in these industries in turn weighed on freight transport, while increased tourism boosted passenger transport.

At the same time, strained household finances amid high interest rates hurt services. The economy likely stagnated in the first quarter, after growing by a modest 0.1% in the fourth quarter of 2023.”

They say agricultural output will be the swing factor in the gross domestic product (GDP) numbers and could either tip GDP into contraction or expansion.

“We expect value added by agriculture to expand by 1.5% compared to the previous quarter, after imploding by 9.7% in the fourth quarter.”

While the spike in load shedding weighed on the sector, various interventions and the establishment of the Agri-Energy Fund helped to soften the blow of power shortages, resulting in growth in the second quarter, they say.

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Agriculture had losses in GDP

“The sector was also struck by foot-and-mouth disease in the cattle industry, as well as African Swine Fever in pigs and Avian Influenza in chickens.

These three industries account for almost 50% of gross value added in agriculture and likely caused the sharp contractions experienced in the last two quarters of 2023, completely offsetting the excellent field crop harvest of the 2022/23 season.”

The re-opening and recovery in export markets and the moderation in meat prices, together with anecdotal evidence of restocking, signal a recovery in the livestock industry, Huntley and Weimar say.

However, dryer weather conditions adversely affected seed and grain output, with the true extent of the damage yet to be assessed, they point out. The National Crop Estimates Committee’s (CEC) fourth estimate of total grain and oil seed production reflects a 22% drop from last season.

Output of maize is forecast to decline by 19%, soybeans by 36% and sunflower seeds by 10%, while the groundnut, sorghum and dry beans harvests are estimated to be higher than the previous season.

“The big unknown is whether the livestock improvement would be enough to overcome the negative outcomes of the summer harvest.

“Our baseline assumption is that the recovery in animal diseases will tilt agricultural gross value added positively, but downside risks remain.

“A more negative outcome for agriculture could tip GDP into contraction in the first quarter.”

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Mining and manufacturing GDP also declined

Huntley and Weimar also point out that mining and manufacturing relapsed in the first quarter. “The poor outcomes reflect challenging operating conditions and weaker domestic and global demand. Mining production was down by 1.7% compared to the fourth quarter.”

Manufacturing production also declined by 1.0%, compared to 0.3% growth in the fourth quarter, while electricity production declined by 1% after a growth of 2.3% in the fourth quarter. The electricity availability factor (EAF) dwindled by 4.8% compared to the previous quarter.

Construction value added is forecast to grow by around 0.3% compared to the previous quarter, improving slightly off the low base of the fourth quarter, when output shrunk by 1.4%. “We expect the lift to come from an uptick in infrastructure investment ahead of the elections. However, our forecast faces downside risks.”

In addition, domestic trade struggled in the first quarter, hurt by weak consumer demand, weighed down by fading consumer confidence, strained real incomes and sharply higher borrowing costs. Weimar and Huntley say the weakness stemmed from retail sales that fell by 0.9% and vehicle sales that decreased by 2.9%.

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Other sectors also saw little growth

“The drag in retail sales came from an 8.9% drop in textiles, clothing, footwear and leather goods compared to the fourth quarter, which outweighed 2% growth in general dealers’ sales.

“Motor trade was hurt by a sharp 9.8% drop in new vehicle sales. Wholesale sales fared slightly better, expanding by a moderate 0.4%.

“Food services grew real income by 0.7% but accommodation income shrunk by around 2.4%.”

Meanwhile, freight transport was down by 1.1%, reflecting the slide in mining, manufacturing and domestic trade, they point out.

The 0.2% quarter-on-quarter increase in international tourists to South Africa supported the growth of 0.6% in passenger transport.

“We expect value added by finance, real estate and business services to have grown by 0.4% in the first quarter. However, banking conditions deteriorated, with real credit extension growing by a negligible 0.1%. Relative to the same quarter a year earlier, real credit extension moderated to 3.9% in the first quarter from 4.6% in the previous quarter.”

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Some quarterly growth, but GDP probably stagnated

Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER) at Stellenbosch University, says the available high-frequency data suggests that the economy eked out some quarterly growth, but it is increasingly possible that the economy stagnated or even contracted.

“As always, the lack of information on the performance of most of the industries in the tertiary sector makes it tricky to firm up our view and we are concerned about possible revisions to fourth quarter agriculture GDP in particular.

“While it is a small industry, large swings in gross value added had an outsized impact on the quarterly GDP performance in recent quarters.”

Jee-A van der Linde, senior economist at Oxford Economics Africa, says the dismal spate of recent economic data releases, a Q1 quarterly real GDP contraction seems increasingly likely.

“Accounting for this observed weakness and present demand conditions, we forecast real GDP will grow by 0.7% in 2024, compared to the consensus forecast of 1.1%.”