Trouble brewing for South Africa

 ·4 Dec 2023

Economists are expecting a disappointing Q3 2023 GDP figure, with it unlikely to improve significantly in the coming quarters.

Investec’s Lara Hodes said that the group expects the GDP in Q3 2023 to have contracted by -0.3% when measured on a quarter-on-quarter seasonally adjusted basis (qqsa) following Q2 2023’s increase of 0.6% qqsa.

This was partially due to a slump in industrial production, which makes up just shy of 20% of GDP.

“Industrial production fell by -1.2% qqsa in Q3.23, with persistent rotational load shedding, logistical constraints, as well as the fragile global environment impeding mining and manufacturing production,” Hodes said.

Investec’s prediction is more negative than Nedbank, which expects GDP growth of 0.1% in Q3. Although this is not a contraction, it is still low.

“Despite the improvements in electricity supply, the damage done and the costs incurred in the drive for greater self-sufficiency, together with the operational issues at Transnet, stricter financial conditions, weaker global demand, and cheaper commodities, all weighed on industry, resulting in a moderation in output in most sectors over the quarter,” Nedbank said.

Although there was an improved energy available factor in Q3, the bank said that the energy problem remains unresolved.

“Operational failures on the part of Transnet have also worsened, with time lags significantly increased at the ports. According to the South African Association of Freight Workers, 46,000 containers were stuck outside two ports off the coast of the Eastern Cape and 61,986 containers outside the Durban port in November,” Nedbank said.

The official GDP figures for Q3 2023 will be released tomorrow, 5 December 2023 at 11h30.

Looking ahead

The outlook for the end of the year and 2024 also remains weak.

Using the results of October’s JP Morgan Global Composite PMI Survey, Hodes said that economic activity stagnated in October, with the weakness mainly due to troubles in Europe – one of South Africa’s key trading partners.

Although the FNB/BER Consumer Confidence Index (CCI) is expected to grow from -16 in Q3, she said that it will remain around -13 when released later this week.

“Consumers continue to grapple with the high cost of living, while elevated interest rates in South Africa, which are expected to remain higher for longer continue to weigh heavily on the indebted,” she said.

“Moreover, persistent load shedding, high unemployment, crime concerns and political uncertainty continue to subdue sentiment.”

Nedbank also said that the power crisis, weaker global demand and lower international commodity prices will continue to hurt production across sectors.

Despite inflation dropping this year, it said that the cumulative 475-basis point hike will continue to hurt household finances, impacting consumer confidence and demand.

“These pressures will cap the upside for services. Altogether, we expect meagre growth of another 0.1% in Q4, limiting real GDP growth to 0.7% in 2023, down from 1.9% in 2022,” it said.

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