Recession warning as GDP growth only reaches 0.3% in past year

An economist has warned that South Africa’s gross domestic product (GDP) growth has been so low over the past year at 0.3% that it borders on recessionary levels due to the ongoing economic challenges the country faces.

Statistics SA announced yesterday that GDP grew by 0.4% in the second quarter compared to the first quarter.

Maarten Ackerman, chief economist at Citadel, says while this week’s GDP results indicated positive growth, after no growth in the first quarter and 0.3% growth in the fourth quarter, the numbers highlight a persistent challenge: the economy is growing well below the population growth rate of approximately 1.5%.

“This discrepancy underscores the lack of significant impact from ongoing economic reforms and suggests continued social pressure and high unemployment. The GDP figures do not yet reflect the optimism we have seen in the financial markets since the government of national unity (GNU) took office.

“Strong returns on the Johannesburg Stock Exchange (JSE), bond market and a strengthening rand are more sentiment-driven, with market watchers hoping that the new government will address the structural barriers hindering economic growth.”

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Vehicle sales and PMI show fundamental weaknesses in SA economy

He warns that recent data, including vehicle sales and the Purchasing Manager’s Index (PMI), an economic indicator that reflects the health of a country’s manufacturing and services sectors, show fundamental weaknesses in the South African economy. “The data could signal that the current market rally may not be sustainable without significant economic improvements.”

While he says manufacturing and construction showed promise, he points out that the agricultural sector contracted by 2.1% from a high base in the previous quarter and a decline in field crops and animal products.

Although household consumption increased by 1.4%, a positive sign despite challenging conditions, Ackerman says the continued decline in gross fixed capital formation is a concerning trend, as it reflects the business sector’s level of willingness to invest in assets that boost the economy, highlighting the need for broader investment beyond just the solar boom.

This is how economic growth slowed according to Statistics SA:

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GDP numbers reflect ongoing structural challenges

Ackerman says the current GDP numbers reflect the ongoing structural challenges that have long hindered South Africa’s economic progress. “Despite some positive developments, such as the emergence of the GNU and optimistic market sentiment, the economy remains constrained.

“Significant work is still required to resolve these structural challenges and achieve sustainable economic growth above 2.5%. Without this and the current optimism surrounding the GNU, South African asset classes could face substantial risks.” 

This graph from Statistics SA shows which industries grew:

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Agriculture fell by 2.1% as expected

After a surprisingly robust quarterly growth of 13.5% in the first quarter, agriculture reversed course as widely expected and fell by 2.1% in the second quarter.

Paul Makube, senior agricultural economist at FNB Commercial, says the downbeat activity in the agriculture sector was not a surprise as the severe midsummer drought forced a reduction in harvest estimates for summer crops with South Africa’s biggest staple, maize, cut by 20.5% to 13.06 million tons and soybeans falling sharply by 35.8% to 1.78 million tons, according to the National Crop Estimates Committee’s 7th estimate report. The total summer grains and oilseed harvest estimate showed a decline of a whopping 22% to 15.69 million tons.

He points out that the cumulative total maize delivered to the country’s silos for the 2024/25 season in the second quarter showed an almost 6% drop in deliveries compared to the previous year. For winter crops, the total area planted was down by 1.6% at 807 250 hectares, with the wheat area which accounts for almost 63% of the total declining by 5.9% at 506 300 hectares. Makube says all these are an indication of reduced activity in the field crop industry.

“The seasonal downturn in demand impacted negatively on the animal products industry, hence the poor showing in its contribution to agriculture GDP outcomes for the second quarter. The quarter’s preliminary data on livestock slaughtering (excluding the June 2024 figures for cattle and sheep) showed an almost 22% drop in the slaughter rate at 2.7 million head, which is 20% below the same period last year.

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Above-normal rainfall, lower fuel prices and stable electricity will help sector

“Nonetheless, the medium-term seasonal outlook points to a potential rebound in agriculture fortunes for the year ahead. While the El Niño-Southern Oscillation (ENSO) is currently still in a neutral state, forecasts still indicate that it is dissipating and likely to strongly transition to the La Nina weather pattern at the onset of the summer season. The South African Weather Services’ forecasts further indicate above-normal rainfall for the central parts and the south-eastern coastal areas of the country during spring and early summer seasons.”

However, it is not all bad news. Makube says further positive developments are that the fuel price outlook shows a decline after three consecutive months of cuts, the electricity supply remains stable and potentially an interest rate cut in the next meeting of the Monetary Policy Committee meeting. “All this augurs well for renewed confidence in the sector.”