Herman van Papendorp, Head of Investment Research & Asset Allocation, Sanisha Packirisamy, Economist and Tshiamo Masike, Economic Analyst; Momentum Investments

Below is a summary prepared by our macro research team on the latest figures for gross domestic product (GDP).

• South Africa’s economy unexpectedly contracted in the first quarter of 2024. According to Statistics SA (Stats SA), real gross domestic product (GDP) according to the production method decreased by 0.1% quarter-on-quarter (q/q). Analysts surveyed by Reuters projected a slight increase of 0.1% q/q and the SA Reserve Bank projected 0.2% q/q. When calculated using the expenditure method, the contraction in real GDP was more at 0.2% q/q.

• On the production side, six of the 10 industries contracted in the first quarter and thus contributed negatively to growth. Manufacturing, mining, and construction were the worst performing industries in the quarter and this offset significantly positive growth in the agriculture industry.

• On the expenditure side, the biggest detractor from economic growth was a decrease in exports. However, imports decreased by more than exports and the net impact was positive on growth. This was, however, overshadowed by a contraction in the other four components of expenditure.

• We maintain our view that household consumption expenditure will be a bigger driver of economic growth in 2024 (1.2%) relative to 2023 (0.7%). The consumption boost from the two-pot retirement system (effective 1 September 2024) is estimated to be bigger in the first few months after implementation and decrease thereafter.

• In our view, economic activity remained weak in the first quarter despite reduced loadshedding because energy availability is not a big driver of economic activity in industries which invested in sufficient back-up power during 2023. Another reason could be that loadshedding was still elevated compared to 2020 and 2022 and thus continued to disrupt economic activity where dependence on Eskom had not decreased.

• The improved energy outlook in 2024 may be witnessed more through better company profit margins on the back of operating diesel-powered back-up energy supply less than when loadshedding is more intense. Higher profit margins could potentially spillover to increased fixed investment.

• Economic growth is expected to tick up in the second quarter underpinned by no power disruptions in April and May (benefiting sectors which are still dependent on Eskom) and easing logistics constraints.

• The ongoing discussions about the future structure of government following the African National Congress (ANC) losing majority support in the 2024 election for the first time since the party came into power in 1994 has increased political uncertainty. The options under consideration include a coalition government, a Government of National Unity, a minority government or a working agreement with the opposition party.

• The outcome of these discussions could have an impact on the economic growth trajectory. According to Bloomberg Economics, a coalition government which involves the Democratic Alliance (DA) will likely yield better economic growth compared to one which includes the Economic Freedom Fighters (EFF).

• Our estimates for economic growth remain unchanged at 1% in 2024, edging higher to 1.7% in 2025 and reaching 1.8% in 2026. We may revisit these projections depending on if there is a move toward any major shift in the pace and/or direction of policy and structural reform.

ENDS