South Africa: GDP records fastest expansion in a year in Q2
GDP reading: GDP growth improved to 0.4% on a seasonally adjusted quarter-on-quarter basis in Q2, above the upwardly-revised flat reading seen in the first quarter (previously: -0.1% s.a. qoq) and marking the best result in a year. That said, the reading marginally undershot market expectations.
On an annual basis, economic growth waned to 0.3% in Q2 from the previous quarter’s 0.5% expansion.
Drivers: The quarterly upturn chiefly reflected improvements in private and public spending, as well as changes in inventories. Domestically, household spending growth—which accounts for roughly two-thirds of GDP—hit an over two-year high of 1.4% on a seasonally adjusted quarter-on-quarter basis in Q2, up from the first quarter’s 0.2% contraction. Public consumption also bounced back, growing 1.0% in Q2 (Q1: -0.2% s.a. qoq). Meanwhile, fixed investment contracted at a milder pace of 1.4% in Q2, following the 1.7% decrease logged in the previous quarter.
On the external front, exports of goods and services fell 0.4% on a seasonally adjusted quarterly basis, which was above the prior period’s 2.9% contraction. Meanwhile, imports of goods and services bounced back, growing 1.7% in Q2 (Q1: -5.0% s.a. qoq). Overall, net exports detracted 0.6 percentage points from the GDP reading, deteriorating from Q1’s 0.7 percentage point contribution.
From a production point of view, the upturn was due to improvements in the manufacturing, trade and finance industries. The rare multi-month streak of uninterrupted electricity supply in the quarter supported overall economic activity, particularly a rebound in manufacturing output.
GDP outlook: Our Consensus is for a mild acceleration in GDP growth in sequential terms in both Q3 and Q4. An uninterrupted energy supply in July and August will have supported overall economic activity so far in the third quarter.
Meanwhile, our panelists have cut their 2024 GDP growth forecasts by 0.3 percentage points so far this year, but they still expect Sub-Saharan Africa’s most industrialized economy to grow at a swifter pace than in 2023; a stronger expansion in private consumption will be behind 2024’s improvement. Easing congestion in ports, especially Durban, and continuing uninterrupted energy supply are key upside risks. Worsening infrastructure constraints are a downside risk.
Panelist insight: Regarding the new government and its impact on the economy, analysts at the EIU commented:
“The formation of an ANC-led centrist government greatly reduces the risk of anti-market or anti-business policies […]. The priority for any South African government is to tackle the underlying challenges of rising poverty and inequality, mass unemployment and embedded criminality, which will continue to threaten social stability.”