Will South Africa dodge a recession?

Will South Africa dodge a recession? Economists do not think so, but the country will only know when Statistics SA announces the gross domestic product data for the fourth quarter of 2023 on Tuesday.

Analysts say a practical definition of a recession is two consecutive quarters of decline in a country’s real gross domestic product (GDP), which is the value of all goods and services a country produces.

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BER: no recession

Lisette IJssel de Schepper, senior economist at the Bureau for Economic Research (BER) at Stellenbosch University, says after the 0.2% contraction in GDP in the third quarter, the BER expects a slight quarterly expansion in the fourth quarter, which means the economy is set to avoid slipping into a technical recession.

“Our full-year forecast is at 0.6% growth for 2023, but the available high-frequency data suggests that an upward surprise in the fourth quarter and by extension the full-year growth figure, is possible.”

She says on the expenditure side, the big uncertainty is around the impact of the intense harbour and rail disruption on net trade and inventories. “The net trade dynamics could also affect the fourth quarter current account. The current account deficit unexpectedly narrowed in the third quarter.

“Looking at GDP from the production side, the big unknown is agriculture, which was a big drag on growth in the third quarter and the ‘invisible’ tertiary sectors, where we do not have any high-frequency data.”

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Independent economist: no recession

Independent economist Elize Kruger says her forecast for real GDP growth in the fourth quarter is 0.4% after the contraction of 0.2% in the third quarter. She also expects that the country will therefore avert a technical recession.

“I expect a mixed bag in terms of sectoral performance, with mining, electricity and water, transport and communication and the financial sector making positive contributions and flat performances from the agricultural, manufacturing and construction sectors.”

The only sector she expects to contract again is wholesale, retail trade and accommodation that will be the third consecutive quarterly contraction, reflecting the strain on consumers due to elevated interest rates, the still high cost of living and low confidence levels.

Her prediction for the full year of 2023 is GDP growth of 0.6%, notably below 2022’s 1.9% and below average population growth. This will mean that average South Africans are becoming poorer, as reflected in the GDP per capita calculations.

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Nedbank Group Economic Unit: no recession

The economists at the Nedbank Group Economic Unit say the improvements in electricity supply over the quarter supported the more energy-intensive industries such as mining, manufacturing and construction.

“The uptick in production likely helped freight transport, while increased tourism boosted passenger transport. However, strained household finances amid high interest rates weighed heavily on services over the quarter. We expect GDP growth in the fourth quarter to increase from -0.2% in the third quarter to a meagre 0.3% in the fourth quarter.”

They say while actual agricultural output remains volatile and unknown, it poses an upside risk to their GDP forecast. “We expect value added by agriculture to expand by 5.9%, after imploding by 9.6% in the third quarter.

“The sector faced favourable conditions for most of 2023. Crop estimates and production forecasts for the summer and winter crops showed improvements from the previous season, supported by good rains, healthy soil moisture, and colder weather.”

Mining and manufacturing bounced back in the fourth quarter and these sectors enjoyed fewer disruptions from load shedding, which outweighed worsening logistical issues at Transnet, the economists say.

Mining production was up by 2.5% over the quarter, but manufacturing production increased by a modest 0.1% in the fourth quarter, offsetting the 0.1% contraction in the third quarter, with six of the 10 manufacturing divisions reporting growth.

“We expect value added by finance, real estate and business services to have grown by 0.2% in the fourth quarter. Altogether, we forecast real GDP growth of about 0.3% for the fourth quarter, with the risk to the forecast tilted slightly to the downside,” they say.