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ECONOMIC OUTLOOK

SA narrowly dodges recession in Q4 as economy grows a sluggish 0.6% in 2023

SA narrowly dodges recession in Q4 as economy grows a sluggish 0.6% in 2023
(Image: Adobestock)

South Africa’s economy narrowly averted a recession in the fourth quarter of last year by growing 0.1% on a quarterly basis following the 0.2% contraction in Q3. It all adds up to tepid growth for all of 2023 of 0.6%.

South Africa’s gross domestic product (GDP) barely grew on a quarterly basis in Q4 of 2023, but it was just enough to avoid a recession.

According to data unveiled on Tuesday by Statistics South Africa (Stats SA), GDP expanded by 0.1% in the quarter after shrinking 0.2% in the previous quarter. A recession is defined as two consecutive quarters of economic contraction, so the dreaded “R” word was averted by the narrowest of margins.

Altogether, real annual GDP grew 0.6% in 2023, a significant slowdown from paltry growth of 1.9% in 2022. And economists generally forecast GDP growth for 2024 of only 0.7% to 1.5%, woefully short of the pace required to make a meaningful dent in South Africa’s shocking levels of unemployment, poverty and inequality.

This is largely a reflection of the failure to address the crippling power shortages, the unfolding logistics crisis, the meltdown of local government services, and rampant crime.

“The South African economy managed to avoid a recession, but the overall picture has not changed: the economy remains stagnant amid soft domestic demand and numerous supply-side growth impediments,” Jee-A van der Linde, Senior Economist at Oxford Economics Africa, said in a commentary on the data.

“… we do not foresee any meaningful improvement in the South African economy over the near term as structural constraints together with a high-cost environment weigh on growth prospects.”

In Q4 2023, six of the 10 broad industries measured for the GDP read eked out growth, but none was shooting the lights out. The transport, storage and communication sector expanded 2.9%, mining by 2.4%.

But manufacturing only posted growth of 0.2% and the agricultural sector had a sharp 9.7% decline, a worrying trend as the El Niño weather system has since scorched South Africa’s grain belt at a crucial time for summer crops such as maize.

Read more in Daily Maverick: Crop Estimates Committee forecasts 12% fall in SA maize production

Also of concern was a 0.2% decline in gross fixed capital formation, a key measure of investment. This followed a sharp 3.8% decline in Q3, which reversed seven consecutive quarters of growth on this front — much of that driven by solar panel installations and other private sector initiatives in the face of unreliable power supplies.

“Years of chronic underinvestment lies at the heart of South Africa’s growth problem. We maintain our view that South Africa entered 2024 with hardly any economic momentum and real GDP growth is expected to pick up only modestly to reach 0.7% this year (versus the consensus forecast of 1.2%),” Van der Linde said.

And the policy cupboard to stimulate short-term growth is bare. The South African Reserve Bank is unlikely to begin cutting rates any time soon, given the fragile rand and the fading prospects of imminent US rate cuts.

Political uncertainty — which is never good for investment — is also on the rise ahead of the May 29 elections.

The bottom line is that a recession has been dodged, but avoiding one is hardly a sign of a healthy economy. DM

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