Pain for South Africa as GDP takes a hit

 ·5 Dec 2023

South African real gross domestic product (GDP) contracted by 0.2% in Q3 2023 after two successive quarters of growth.

The drop is broadly in line with economists’ expectations after a difficult three months for several industries

The drop follows the growth of 0.4% in Q1 and a downwardly revised 0.5% in Q2.

“The contributions to the performance of the economy were evenly spread between the industries on the production side of the economy. The contributions ranged from -0,3 of a percentage point to +0,1 of a percentage point,” Stats SA said.

The production side of the economy was disappointing, with half of the ten industries recorded seeing weaker results.

The agriculture industry dropped by 9.6%, mainly due to lower field crops, animal products and horticulture products. The industry faced a tough quarter following the outbreak of avian flu and the Western Cape floods.

Manufacturing production dropped by 1.3%, with the Food & beverages and petroleum & chemical divisions being the biggest drags on growth in the industry. The production of chicken-related products were also affected by the outbreak of avian flu.

“Weaker activity from agriculture and manufacturing had a knock-on effect on wholesale trade, contributing to a 0.2% decline in the trade, catering & accommodation industry. Motor trade and restaurants, catering & fast-food were also weaker in the quarter,” Stats SA said.

“The construction industry weakened further, recording a second consecutive quarter of decline. Decreased activities were reported for residential buildings, non-residential buildings and construction works.”

Mining production also dropped by 1.1% due to the downward pressure on PGMs, gold and manganese ore.

Although tourist accommodation and retail trade improved, they remained in negative territory.

Looking more positively, finance, real estate & business services, personal services and transport, storage & communication were the largest positive contributors to GDP growth.

Transport, storage & communication grew by 0.9% due to increased economic activity in land and air transport, transport support services and communications, even if road freight saw a retraction.

The electricity, gas & water supply industry grew by 0.2% after five consecutive quarters of decline following increased electricity generation.

“The country experienced less intense load shedding in the third quarter, racking up only 20 days of stage 5 and stage 6 load shedding. This is lower than the 46 days recorded in the second quarter, according to The Outlier and EskomSePush. Water consumption, however, was down in the second quarter because of water restrictions in various municipalities,” Stats SA said.

On the expenditure side, investments and equipment dropped by 3.2% in Q3, donating negatively to gross fixed capital formation

The decline follows a sharp rise in investments in imported machinery and equipment in Q2, mainly due to renewable energy.

“The country invested R303 billion in machinery and equipment in the second quarter, up from R273 billion in the first quarter. This spike was short-lived, with investments in machinery and equipment pulling back in the third quarter to R293 billion,” Stats SA said.

“The pull-back in demand for machinery and equipment contributed to the 8.6% decline in imports. There were also decreases in imports of chemical products, resins & plastics, base metals & articles of base metals, vegetable products and vehicles & transport equipment.”

The country did, however, export more in Q3, primarily due to increased trade in vehicles & transport equipment; pearls, precious & semi-precious stones; precious metals; and vegetable products.

In terms of households, cash-strapped consumers reduced consumption expenditure for the second quarter in a row, with expenditure on transport, recreation and housing utilities, while spending more on items such as clothing & footwear and restaurants & hotels declining.

The statistics body also noted that R44.5 billion drawdown of inventory build-up in the South African economy after six quarters of growth.

“What does this mean? Instead of selling stock immediately after production, a company may decide to store a portion of its stock in a warehouse (i.e. inventories) to sell at a later stage. The company might do this as a buffer against uncertainties in demand and supply,” Stats SA said.

“The flow of goods into inventories (a build-up) is regarded as an investment and contributes positively to expenditure on GDP, while the flow of goods out of inventories (a drawdown) contributes negatively.”

“The drawdown recorded in the third quarter was a negative contributor to growth on the demand side of the economy. It occurred across various industries, including manufacturing; mining; and transport, storage & communication.”

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