South Africa is likely to avoid a recession, with Q2 2024 expected to see quarter-on-quarter growth.
According to Nedbank’s economists, high-frequency statistics reflect a weak uptick in economic activity in Q2.
The improvement reflects base effects, improved operating conditions and a weak but positive response in demand to falling inflation.
Real GDP is expected to grow by 0.4% in qoq in Q2 2024. Stats SA will publish the Q2 data on Tuesday (3 September).
Following a 0.1% QoQ contraction in Q1 2024, South Africa will avoid a technical recession characterised by two consecutive negative growth periods.
“The absence of load-shedding created a more favourable environment for producers. Enhanced efficiencies at power stations due to the return of three units at Kusile power station and increased planned maintenance led to an average energy availability factor (EAF) of 61%,” said Nedbank.
“Even though energy demand rose by 2% qoq over the winter, unplanned outages fell by 11% qoq and the use of Open Cycle Gas Turbine (OCGT) by 50.7% qoq.”
“These improvements failed to compensate for continued inefficiencies in logistics networks, generally subdued global and domestic demand and lower commodity prices. Consequently, mining production contracted further while manufacturing output increased modestly off a low base.”
Lower inflation, particularly on essentials like food and fuel, has supported consumers’ purchasing power and real incomes, which has offset the ongoing squeeze from high interest rates.
Thus, Domestic trade increased over the quarter, with retail sales rising by 1.5% and wholesale edging by 0.9%.
However, vehicle sales, accommodation income and food services declined further, dropping by 1.5%, 12.6% and 0.2%, respectively.
Passenger transport grew, but freight transport disappointed.
“We view the risks to our Q2 GDP forecast as relatively balanced,” said Nedbank.
“Upside risks to domestic trade, transport, communications, and government services will likely counter the downsides to agriculture and finance. Agriculture remains the wildcard.”
“Lower summer crops will be a drag, but these could still be offset by higher value-added from horticulture and animal farming.”
Despite mixed performances in Q2, Nedbank believes the worst of the downturn is probably over.
It expects the economy to perform better in the year’s second half.
The main boost will come from domestic demand, supported by firmer consumer confidence, a recovery in real household incomes due to lower inflation and lower debt services costs as interest rates ease.
“Despite the progress made on the structural front, operating conditions remain challenging and production costs high. These factors will continue to weigh on producers and exporters.”
“While global demand will likely improve moderately as inflation and monetary policy ease, subdued demand from China will restrict the upside.”
“Even if international demand does take off, SA’s elevated cost structures, underlying inefficiencies and significant infrastructure constraints severely limit our producers’ ability to exploit a global upturn fully.”
Overall, Nedbank expects growth of 0.9% in 2024, up slightly from 0.7% in 2023.
The key to unlocking growth will be resolving the country’s energy and logistical constraints.
Although the Government of National Unity (GNU) has brought with it renewed optimism, it will still need to translate this into accelerated structural reforms to enhance the industry’s international competitiveness. This will allow the economy to grow faster and create more jobs.
This will need to be done without hitting supply bottlenecks, which would drive up costs and stoke inflation.
Looks promising
Economists and analysts are optimistic about South Africa’s economic performance in the coming years. The nation is expected to see substantial growth.
According to the latest Bank of America Fund Manager Survey, investors believe that South Africa’s GDP will increase by 2.0% to 2.5% in the next three years on the back of improvements in the logistics and electricity sectors.
The Bureau of Economic Research (BER) also expects the nation’s GDP to increase by 2.2% in 2025, the fastest rate over a decade (excluding 2021, which saw a rebound from the COVID-19 pandemic-induced recession of 2020).
The BER said that this uplift is due to improvements in logistics space and improved sentiment amongst businesses and households.
Absa also upped its 2025 GDP forecast from 1.7% to 2.0%. The ‘Big Four’ bank expects a continued boost in electricity supply, and the GNU’s support of reform in critical areas should boost private confidence and investment.
That said, there are still concerns over the logistics sector, as freight volumes are not recovering smoothly despite a slight improvement.
The country’s localised water shortages are also a massive risk that needs to be monitored, particularly in Gauteng, which could impact growth.
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