Ed Stoddard | 3 September 2024
South Africa’s economy grew 0.4% in the second quarter of this year after a revised performance that saw its size unchanged on a quarterly basis in Q1 from the initial estimate of a 0.1% contraction, Statistics South Africa said on Tuesday. This remains a woeful pace to tackle the terrible trifecta of poverty, unemployment and inequality.
The read of a 0.4% second-quarter (Q2) expansion on a quarterly basis was just shy of economists’ expectations and underscores the scale of the challenge to switch economic gears into significantly faster growth.
The April-to-June period was marked by the notable milestone of Eskom implementing no rolling nationwide power cuts during the entire three months. The power crisis has long been regarded as the biggest constraint on economic growth, so that was a big deal.
And the electricity sector did contribute to the marginal rate of growth recorded.
“… the electricity, gas & water supply industry… grew by 3.1%, driven by increased electricity generation and water distribution. If we ignore the topsy-turvy economic environment caused by the pandemic in 2020, the 3.1% growth rate represents the sharpest increase since the third quarter of 2008 (also 3.1%),” Statistics South Africa said.
Yet the economy is showing no signs yet of lift-off and overall growth remains at a woeful pace to tackle the terrible trifecta of poverty, unemployment and inequality.
It is probably also the case that political uncertainty ahead of the elections in late May may have kept a lid on confidence and investment, with the formation of the government of national unity coming too late in the quarter to make a real material difference to growth.
The best that can be said is that the economy at least expanded in Q2 after flatlining in Q1 – a slight upward revision from the initial estimate of a 0.1% contraction — and hopefully the pace can pick up in the second half of the year, helped my mounting expectations of a domestic interest rate cut this month as inflation slows.
There are some green shoots on the demand side of the data that could start to blossom in a lower inflation and interest rate environment, and looming withdrawals under the new “two-pot” retirement system are seen as a potential boost to expenditure.
“On the expenditure (demand) side of the economy, rising consumer confidence saw household consumption expenditure strengthen by 1.4%. Consumers increased their spending across most product categories,” Stats SA said.
This followed a 0.2% decline in Q1 and economists said this was a surprise on the upside.
“That 1.4% growth in household consumption stood out, we didn’t expect that given current economic conditions. But it’s from a low base,” Jee-A van der Linde, senior economist at Oxford Economics Africa, told Daily Maverick.
On the production side, manufacturing returned to growth with an expansion of 1.1% after a 1.4% dip in the previous quarter. But the mining sector maintained its decline with a 0.8% fall in production, and agricultural output dropped 2.1%.
“Agriculture, forestry and fishing faced headwinds, including lower-than-expected rainfall in some parts of the country (affecting maize and soya bean production), heavy rain in KwaZulu-Natal (affecting sugar cane production), and foot-and-mouth disease (affecting sheep and pork production),” Stats SA said.
Headwinds also abound for manufacturing and mining. The Absa Purchasing Managers’ Index (PMI) for August contracted back into negative territory, suggesting that the sector is struggling to gain traction this quarter.
Meanwhile, the mining sector remains hampered by logistical constraints, low prices for platinum group metals and rising costs.
One very worrying sign in the data was a 1.4% fall in gross fixed capital formation, which is effectively a broad measurement of investment. This was its fourth straight quarter of decline and much faster rates of economic growth require this number to start rising.
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