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South Africa Economy Shrinks as Outages, Logistics Take Toll

South Africa Economy Shrinks as Outages, Logistics Take Toll
A worker sorts products in the storeroom of the OK Foods supermarket in Frankfort, South Africa, on Friday, June 2, 2023. The rural town of Frankfort has returned into scheduled blackouts, following a court-issued ban sought by Eskom Holdings SOC Ltd. against Rural Free State (Pty) Ltd., who were easing loadshedding schedules for residents by providing power from a local photovoltaic solar plant.

South Africa’s economy shrank in the third quarter as logistics constraints and a chronic electricity shortage took their toll.

Gross domestic product contracted 0.7% year-on-year in the three months through September, compared with growth of 1.5% in the prior quarter, Statistics South Africa said in a report released in the capital, Pretoria, on Tuesday. The median estimate of 11 economists in a Bloomberg survey was for output to shrink 0.1% in the period.

The slump follows a 2.2% annual contraction in mining and a 3.2% slowdown in utilities over the three-month period. Agriculture shrank 19.9% from a year earlier, while construction contracted 2%.

South Africa's GDP Decline Exceeds Expectations | Output shrank 0.7% from a year earlier; estimate was for 0.1% drop

Household spending, which has come under pressure from high living and borrowing costs, shrank 0.3% in the quarter. The central bank has increased its benchmark rates by 475 basis points since November 2021 to a 14-year high of 8.25%.

The fall in household expenditure also comes amid pressure on money supply and credit extension, with the amount of money flowing into the economy and loans extended to consumers and private businesses posting their weakest growth in almost two years in October, according to central bank released last week.

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In its latest Financial Stability Review, the bank also flagged stresses on lenders, which it said are beginning to take strain from the high interest rate environment, spurring more careful lending approaches.

Read More: Traders Revise South Africa Rate Cut Bets as Credit Growth Slows

For the nine months through September, GDP grew 0.3% compared with the previous year, an early indication that growth may underperform the 0.8% forecasts for the year from the National Treasury and the central bank. On a quarter-on-quarter basis, the economy contracted 0.2%, compared with analyst expectations for an unchanged print.

What Bloomberg Economics Says…

South Africa’s weaker than expected third quarter GDP is likely to be temporary, with energy investment set to support growth in the coming quarters.

— Yvonne Mhango, Africa economist

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