Business Maverick

RECESSION WATCH

Gloomy outlook for SA after economy contracts by more than expected in third quarter

Gloomy outlook for SA after economy contracts by more than expected in third quarter
(Photo: Waldo Swiegers / Bloomberg via Getty Images)

The bottom line is that South Africa’s economy is in deep trouble and may be falling into a recession, which is defined as two consecutive quarters of economic contraction.

South Africa’s economy contracted by 0.2% on a quarter-on-quarter and seasonally adjusted basis in the third quarter (Q3) of 2023, Statistics South Africa (Stats SA) said on Tuesday. This signals that the economy may be falling into a recession. 

The 0.2% quarterly contraction in Q3 follows tepid growth of 0.5% in Q2, a downward revision from the initial estimate of 0.6%. On an unadjusted annual basis, gross domestic product (GDP) shrank by 0.7%.  

A Reuters poll had forecast smaller declines of 0.1% quarter-on-quarter and 0.2% year on year. The rand responded by falling in the space of an hour to 18.80/dlr from 18.75/dlr when the data were released.  

Agriculture, construction, mining and manufacturing had the biggest falls in output — a worrying trend as these are labour-intensive sectors in an economy with an unemployment rate of over 30%.  

“The agriculture industry declined by 9.6%, driven lower mainly by field crops, animal products and horticulture products. The industry encountered several headwinds in the third quarter, including the outbreak of avian flu and the floods in Western Cape,” Stats SA said.  

Manufacturing output declined by 1.3%, while mining production fell by 1.1%, extending a long-term downward trajectory in the latter sector.  

The reasons for South Africa’s low-growth — and now contracting — economic profile are well known. They include the crippling power shortages which have been exacerbated by Transnet’s mounting woes, as well as high interest rates.  

A recent report by the Growth Lab at Harvard University highlighted collapsing state capacity, spurred by political patronage and cadre deployment, and persistent “spatial exclusion” as key constraints to economic growth in South Africa. 

Read more in Daily Maverick: New Harvard report dissects how state failure, spatial exclusion are curbing SA’s growth 

Crime and corruption are taking a grim economic toll. Crime costs South Africa’s economy the equivalent of about 10% of its GDP each year, according to a recent World Bank report.  

The bottom line is that South Africa’s economy is in deep trouble and may be falling into a recession, which is defined as two consecutive quarters of economic contraction. 

The signals so far in the final quarter of 2023 certainly point to another contraction. Rotational power cuts have surged again and Eskom has warned that there will be more rolling blackouts during December and January.  

Meanwhile, Transnet’s woes have spiralled from bad to worse, with mounting backlogs at the ports, which hamper exporters while preventing retailers from stocking up for the Christmas season. 

This is all a drain on confidence. The RMB/BER Business Confidence Index lost further ground in deeply negative territory in Q4, led by a startling slide in the sentiment of new vehicle dealers.  

The Absa Purchasing Managers’ Index (PMI) — a key barometer of the health of the manufacturing sector — crept up in November but remains below the neutral 50 mark, indicating that activity remains subdued.  

Still, there are hopes that if South Africa’s economy is indeed in a recession, it will slowly grow out of it next year.  

“Going forward, economic growth is expected to accelerate next year from this year’s low base. This is largely a function of load shedding easing somewhat as the power crisis comes under control… Any softness in global growth next year, however, may put a dampener on temporary respite in South Africa,” Reza Hendrickse, portfolio manager at PPS Investments, said in a commentary on the data. DM

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  • Ben Harper says:

    “May” be falling into a recession? It’s in free-fall to oblivion

  • Jon Quirk says:

    When does the ANC’s gross mis-management of the economy, which condemns tens of millions to abject poverty and takes away any prospect of a hopeful future, become a “Crime Against Humanity”?

    Because, believe me, this is doing more longterm harm to so very many, and will cause more lasting damage than Apartheid ever could.

    Apartheid, from 1948 to 1990, when the whites only electorate (incidentally the only election I have ever, as a permanent, tax-paying resident, been allowed to vote in) consigned it to the dustbin of history, a period of 42 years, did far less damage than the gross mismanagement of the economy from 2002 to, to date, 2023.

    Time that the UN called it out as a Crime against Humanity.

    • Dhasagan Pillay says:

      Nobody is coming Jon Quirk. That’s the crazy, scary and amazingly hopeful truth of our era. If it’s going to be, it’s only up to me. I can’t count on you, or my neighbour or the guy trying to be President of Mars – cos he won’t vote. The power is completely in my hands. As a voter, it’s in yours too. Take it, use it and be there – for yourself.

  • W De Soto says:

    Surprising

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