SA at risk of recession

There's a risk that the South African economy – battered by higher levels of load shedding, inflation and chaos at ports – may end 2023 in recession, after disappointing GDP data in the third quarter.

The SA economy shrank 0.2% from the second quarter to the third and 0.7% year-on-year, according to data released by Stats SA on Tuesday. That was worse than economists’ estimates and half of the country’s industries showed a decline. If the fourth quarter is negative, the two consecutive periods of negative GDP growth will tip the economy into a technical recession, although economists said that’s still not their base case scenario.

Real GDP growth averaged just 0.3% during the first three quarters of 2023 and the fourth quarter is unlikely to show a strong economic performance due to the return of Stage 6 load shedding alongside severe constraints at the country's largest ports, Christie Viljoen, senior manager and economist at PwC, said.

The latest contraction in the economy comes after only two quarters of growth and that growth wasn’t outsized, with 0.4% in the first quarter and a downwardly revised 0.5% in the second. Stats SA’s numbers signal that the economy remains stuck in a muted growth range, according to Elize Kruger, an independent economist.

"The negative impact of ongoing load shedding, logistical constraints at road, rail, and ports, avian flu in the agricultural sector and the consumer under pressure due to elevated interest rates and the high cost of living created a perfect storm for the SA economy in the third quarter," Kruger said. Still, she does not expect a technical recession.

Five industries shrank, with agriculture showing the biggest decline, followed by construction, manufacturing, mining and trade. The agriculture, forestry and fishing industry decreased 9.6%, contributing -0.3 of a percentage point to the negative GDP growth. This was primarily due to decreased economic activities reported for field crops, animal products and horticulture products, Stats SA said.

Wandile Sihlobo, chief economist of the Agricultural Business Chamber, said headwinds in the livestock and poultry industry weighed on the sector.

Livestock

According to Sihlobo: The livestock and poultry industry, which accounts for nearly half the sector's value, has been hit by animal diseases such as foot-and-mouth, avian influenza and African swine fever.

The third quarter’s contraction and the lacklustre growth of the first and second quarters mean it’s now possible the agricultural sector will show a mild contraction this year instead of the solid growth the Agricultural Business Chamber initially forecast, Sihlobo said.

Imports figuratively fell off a cliff in the third quarter, dropping by 8.6%. That’s the steepest decline since the second quarter of 2020 when the Covid-19 pandemic hit.

Stats SA said the number was influenced by reduced trade in machinery and electrical equipment; chemical products; artificial resins and plastics; base metals and articles of base metals; vegetable products; and vehicles and transport equipment. Further, household spending pulled back, investment declined, and government expenditure increased just 0.3% and mostly only because it increased employees' pay.

"It’s not impossible to have another negative quarter in the fourth quarter, but I think that’s unlikely," said Johann Els, group chief economist at Old Mutual. Rebounds may be seen in mining, manufacturing, agriculture and consumer spending, he said.

Even if there were to be a technical recession, it doesn’t matter that much, Els said. "Very weak economic growth continuously might turn out to be even worse than just two negative quarters."

The Monetary Policy Committee revised its GDP growth forecast for 2023 upward in November, to 0.8% from 0.7%, but in hindsight that appears optimistic.

Kruger’s full-year forecast for 2023 is now at a muted 0.6%, which she pointed out is notably lower than SA’s population growth of about around 1.2% to 1.3%. That means GDP per capita is likely to decline again in 2023 with all South Africans becoming poorer.

"With many challenges ongoing, it’s likely that this 'muddle-along' scenario will continue into 2024," said Kruger.-Fin24