More signs of trouble for South Africa

 ·28 Nov 2023

The lastest quarterly data for industrial and manufacturing production in South Africa points to a much weaker performance for the economy in the third quarter of the year – with business sentiment across most sectors not showing signs of significant improvement.

Industrial production contracted by 1.2% in Q3.23 qqsa (quarter-on-quarter, seasonally adjusted), with the sector contributing 19.7% to GDP in real terms.

This sector consists of manufacturing, mining and electricity production.

According to Investec chief economist Annabel Bishop, the contraction will have a large impact on the country’s third-quarter GDP outcome, and is comparable to the GDP headline figure.

The construction sector, making up the secondary sector of GDP with electricity and manufacturing, saw building completions contract 20.8% qqsa, while manufacturing production contracted by 1.2% qqsa and electricity production rose by 0.3% qqsa.

“On a year on year basis, manufacturing production fell by a hefty 4.3%, as base effects from the KwaZulu Natal floods, which had been artificially boosting the growth rate from April through to August, came out of the system,” she said.

“All of these are in real – adjusted for inflation – terms.”

The primary sector of GDP consists of mining and agricultural production, with the former contracting in Q3.23 by 1.5% qqsa, with mining weighted at 35% in the industrial production index.

While aggregated data is not available yet for the agricultural sector, wheat production is reported to have seen a very good harvest, up on the previous season, Bishop said – although overall, the sector is very volatile and only contributes 3.2% to GDP.

In the tertiary sector, the third quarter saw wholesale trade sales contract by 0.6% qqsa, vehicle sales fell by 1.9% q/q, while retail trade sales rose by 0.8% qqsa.

“This will lessen, but by no means on its own eradicate, some of the effect of the contractions,” the economist noted.

Sentiment is not good

Also in the tertiary sector, the Bureau for Economic Research’s other services sector (hotels, restaurants, transport, real estate and business services) survey found less than half of the respondents expressed satisfaction with the prevailing business conditions in the third quarter.

Tourism accommodation lifted 1.4% qqsa, with the survey’s other sectors seeing poorer performances.

Confidence in the real estate sector continued to drop, the civil construction industry also showed significant dissatisfaction, and building confidence remains weak, the economist noted.

“Overall, the data available for Q3 indicates poor performance for GDP overall, which is in line with our forecasts, and overall growth for 2023 of 0.5% y/y,” Bishop said.

Read: Alarm bells for South Africa’s GDP

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