/ 5 December 2023

Economy shrinks by 0.2% in third quarter

Growth Economy South Africa
The decision to form a unity government has been broadly welcomed by economists.

South Africa’s economy contracted by 0.2% in the third quarter of 2023, despite less severe load-shedding during the period.

According to data released by Statistics South Africa on Tuesday, five out of 10 industries recorded declines during the quarter. The biggest drags on growth were agriculture, manufacturing and construction. 

The weaker GDP data comes after the economy surprised in the second quarter when it grew 0.6%. But even back then economists expected that the more buoyant growth would be short-lived, considering worsening logistical constraints amid Transnet’s decline, as well as higher interest rates.

Tuesday’s data shows that, after five consecutive quarters of decline, the electricity, gas and water supply industry grew marginally by 0.2% thanks to the ramping up of power generation.

It also reveals that gross fixed capital formation fell during the quarter, largely because of a 3.2% decline in investments in machinery and equipment. This decrease could indicate lower appetite for new renewable energy-related investments, which have been a boon for the country’s anaemic economy in 2023.

Moreover, after an unexpected contraction in the second quarter of the year, household consumption fell by a further 0.3%.

Ahead of Tuesday’s GDP print, Investec economist Lara Hodes noted that household finances remain under pressure. 

“Consumers continue to grapple with the high cost of living, while elevated interest rates in South Africa which are expected to remain higher for longer continue to weigh heavily on the indebted,” Hodes said.

“Moreover, persistent load-shedding, high unemployment, crime concerns and political uncertainty continue to subdue sentiment.”