South Africa’s gross domestic product (GDP) increased by 0.6% in the second quarter on a seasonally adjusted basis, which North West University Business School Professor Raymond Parsons says is welcoming news.
He notes that GDP has extended its gains for a second consecutive quarter, demonstrating a noteworthy degree of resilience in the economy.
He adds that this has mainly been the outcome of more moderate Eskom loadshedding in June compared with April and May.
Nonetheless, there remains a high degree of volatility in the growth dynamics, which is apparent in the wide divergence in growth forecasts for the second quarter, ranging from 0.1% to 0.7%.
“It is a reflection, not only of the difficulties in quantifying the biggest supply obstacles in the economy, but also of being a significant source of uncertainty in growth expectations,” Parsons states.
For now, the balance of risks to growth prospects remains on the upside.
“Loadshedding is already back to Level 6 as of early September, illustrating the extent to which Eskom is holding South Africa’s growth potential hostage,” he says.
Additionally, other economic data such as retail sales and credit demand remain weak as a result of higher borrowing costs and rand depreciation, which cut disposable income.
The economy, therefore, still struggles to gain sufficient momentum to sustain a higher rate of job-rich growth. A growth outlook of less than 1% for this year, with not much better rates expected in 2024, has immediate negative implications for fiscal sustainability, as tax revenues fall short of projections and government spending exceeds planned budget levels, Parsons says.
Insurance company PPS Investments portfolio manager Reza Hendrickse says although 1.6% year-on-year growth in GDP is nothing to celebrate, the economy appears to be holding up reasonably well, considering the electricity situation and the fact that higher interest rates and inflation have left consumers with less disposable income.
PPS expects economic growth to remain constrained in the second half of the year, with loadshedding as the main expected constraint.
The private sector is, however, responding to Eskom's failure by implementing its own power solutions, meaning the electricity headwind should have a smaller impact on growth next year. There may be other challenges to contend with, such as a potential US recession, PPS warns.
Meanwhile, Statistics South Africa (Stats SA) reports the manufacturing industry increased by 2.2% in the second quarter, contributing 0.3 of a percentage point to GDP growth.
Nine of the ten manufacturing divisions reported positive growth rates in the second quarter.
The petroleum, chemical products, rubber and plastic products division made the largest contribution to the increase in the second quarter.
The basic iron and steel, nonferrous metal products, metal products and machinery division also made a significant contribution to the growth in this industry.
The finance, real estate and business services industry increased by 0.7% in the second quarter, contributing 0.2 of a percentage point to GDP growth.
Increased economic activities were reported for financial intermediation, insurance and real estate activities.
The agriculture, forestry and fishing industry increased by 4.2% in the second quarter, contributing 0.1 of a percentage point to GDP growth. This was primarily owing to increased economic activities reported for field crops and horticulture products.
Stats SA reports that the personal services industry increased by 0.7% in the second quarter, contributing 0.1 of a percentage point to GDP growth. Increased economic activities were reported for health and education.
The mining and quarrying industry increased by 1.3% in the second quarter, contributed 0.1 of a percentage point to GDP growth. Increased economic activities were reported for platinum group metals, gold, other metallic minerals and coal.
Moreover, expenditure on real GDP increased by 0.6% in the second quarter of 2023.
Household final consumption expenditure (HFCE) decreased by 0.3% in the second quarter, contributing -0.2 of a percentage point to total growth. Decreases were reported for non-durable, durable and semi-durable goods.
The main negative contributors to the growth in HFCE were expenditures on food and non-alcoholic beverages, contracting by 1.2% and contributing -0.2 of a percentage point; furnishings, household equipment and maintenance, which contracted by 2.1% and contributed -0.1 of a percentage point; and the ‘other’ category which contracted by 0.9% and contributed -0.1 of a percentage point.
Spend was also down on housing, water, electricity, gas and other fuels, contracting by 0.5% and contributing -0.1 of a percentage point; recreation and culture, which contracted by 0.9% and contributed -0,1 of a percentage point; and clothing and footwear, contracting by 1% and contributing -0.1 of a percentage point.
Expenditures on restaurants and hotels, transport, health and education contributed positively to growth in HFCE in the second quarter.
Final consumption expenditure by general government increased by 1.7% in the second quarter, mainly driven by increases in goods and services and compensation of employees.
Total gross fixed capital formation increased by 3.9% in the second quarter. The positive contributors to the increase were machinery and other equipment, growing by 11% and contributing 4.4 percentage points, and construction works, which grew by 0.3% and contributed 0.1 of a percentage point.
There was a R58.9-billion build-up of inventories in the second quarter of the year – on a seasonally adjusted and annualised value. Large increases in three industries (manufacturing, trade, catering and accommodation and mining and quarrying) contributed to the inventory build-up.
Net exports contributed negatively to growth in expenditure on GDP in the second quarter. Exports of goods and services increased by 0.9%, which was largely influenced by increased trade in chemical products; prepared foodstuffs, beverages and tobacco; vehicles and transport equipment; mineral products; and machinery and electrical equipment.
Imports of goods and services increased by 3.3% and was largely influenced by increased trade in machinery and electrical equipment; vegetable products; artificial resins and plastics; base metals and articles of base metals; and animal and vegetable fats and oil.