/ 5 September 2023

SA’s economy records better-than-expected growth


South Africa’s economy exceeded expectations in the second quarter of 2023, growing 0.6%.

The quarter-on-quarter lift puts the country’s economy firmly back on track towards recovery, but it is still slightly smaller than it was in the third quarter of 2023 — a period that was followed by more severe levels of load-shedding.

According to Statistics South Africa’s data released on Tuesday, six out of 10 industries recorded growth in the quarter, although manufacturing contributed the most to the boost in the country’s GDP. Agriculture also saw impressive growth during the period (up by R40 billion to R79 billion, in nominal terms) after the industry’s earlier contraction saw it inflict the biggest blow to the country’s GDP in the first quarter.

The Bloomberg consensus, as well as the Reuters poll, put the second quarter lift at 0.3% and 0.2% quarter-on-quarter respectively. The Bureau for Economic Research, however, was somewhat more bullish on growth, at 0.5% quarter-on-quarter, given signs of a robust increase in the mining and manufacturing output, agriculture’s rebound and the green investment-inspired boost to the construction sector.

Although Nedbank’s forecast was also slightly higher than consensus predictions, the bank’s economists suggested this may be short-lived.

“This resilience will likely fade in Q3 as load-shedding intensifies once Eskom resumes its summer maintenance programmes, other logistical constraints persist and sharply higher interest rates weigh down on companies and households,” they said in a research note.

The more severe bouts of load-shedding that have characterised 2023 pose a considerable risk to South Africa’s economic recovery — a fact that the South African Reserve Bank has repeatedly underlined.

In its most recent monetary policy committee (MPC) statement, the bank forecast that South Africa would experience 280 days — more than three quarters of the year — of load-shedding in 2023. The costs to GDP grow significantly during higher levels of load-shedding. 

On Monday evening, Eskom announced that it would implement stage six load-shedding from Tuesday morning until further notice. This is in the wake of an increase in planned maintenance.

Meanwhile, high borrowing costs have also weighed on growth. The MPC is set to announce its next repo rate decision later this month, but economists are not expecting a cut anytime soon. Reserve Bank governor Lesetja Kganyago has suggested that he would like to see inflation sustainably anchored towards the midpoint before declaring the end to the fight against spiralling prices.

August’s inflation print will drop ahead of the MPC’s decision. According to Investec chief economist Annabel Bishop, the August data will probably show a temporary rise in inflation on base effects. Although the annual inflation rate could return to 5%, Bishop said the MPC “should look through the temporary rise and not necessarily see it as a cause on its own to tighten monetary policy”.

According to Tuesday’s GDP data, household consumption decreased in the second quarter as consumers cut back on eight of the 12 categories of goods and services. The main negative contributors to household consumption was spending on food and non-alcoholic beverages, the category at the heart of South Africa’s sticky inflation.