Sanisha Packirisamy, Economist at Momentum Investments

Statistics South Africa (Stats SA) reported that Gross Domestic Product (GDP) expanded by 0.6% during the second quarter (1.6% in year-on-year (y/y) terms), following a 0.4% uptick in the first quarter, despite the most severe energy outages that the country has experienced to date. Government, fixed investment and a build-up in inventory were largely responsible for a higher-than-expected growth outcome. Taking today’s figure into account, this brings the first half of this year’s growth to 0.9% relative to the first half of 2022 and leaves the economy around 1% larger than pre-pandemic levels, in inflation-adjusted terms.

“Relative to the Bloomberg median expectation, today’s growth figure surprised positively by a notable 0.3%”, says Sanisha Packirisamy, economist at Momentum Investments. She expects growth for the full year to average 0.3%, before lifting to an expected 1.1% in 2024 as more energy availability comes online.

“Mining (buoyed by platinum group metals, gold and coal) and manufacturing (mainly petroleum, chemical, rubber and plastic products) production volumes displayed particular resilience in spite of electricity shortages,” according to Packirisamy. She noted, “these sectors collectively contributed 0.4% to the 0.6% growth rate in economic activity in the second quarter of the year.”

“On the expenditure breakdown, the SA consumer detracted from overall growth in the second quarter of the year, with lower spending on food and clothing, indicative of ongoing stress felt at the household level. Meanwhile, fixed investment rose 3.9% in the quarter, largely supported by strong growth in machinery and equipment. Residential, non-residential and construction works nevertheless performed poorly over the quarter, signalling muted sentiment.”

Packirisamy highlights that, “weaker growth in household consumption, depressed business and consumer sentiment, decelerating inflation and a string of favourable inflation surprises bode well for the interest rate outlook to remain on hold at the upcoming September rate-setting meeting.”

“That said, it is likely premature to discuss interest rate cuts given the lingering threat of upside risks to the inflation outlook. As such, we only expect the first interest rate cut in SA by the second quarter of next year,” she adds.

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