The South African economy experienced an unforeseen contraction of 0.3% when measured from the second quarter to the third quarter of the current year.
Key Takeaways
- Agriculture’s Severe Contraction Drags Economy Down: The agricultural sector contracted by a staggering 28.8%, heavily impacting the overall GDP. This highlights the sector’s vulnerability to drought and adverse weather conditions, emphasizing the urgent need for climate adaptation strategies.
- Finance and Services Bolster GDP Amid Broader Weakness: The finance sector, South Africa’s largest economic contributor, grew by 1.3%, helping to offset declines in other sectors. Personal services and manufacturing also contributed positively, underscoring the importance of non-agricultural sectors in supporting the economy.
- Pressure Mounts on Policymakers as Economic Momentum Slows: The unexpected contraction of -0.3% GDP and weak annual growth of 0.3% are likely to increase pressure on the South African Reserve Bank to implement further monetary easing. Market expectations of future rate cuts reflect concerns over sluggish economic recovery.
Market analysts surveyed by Reuters had anticipated a more optimistic growth of 0.5%, which did not materialise.
Comparatively, the economy in the third quarter was just 0.3% larger than it had been during the same period the previous year.
A GDP contraction means the economy produced fewer goods and services than in the previous quarter. It’s often seen as a red flag for slowing growth or potential recession if the trend persists.
Quarterly Real GDP Trends
| Period | Real GDP (Constant 2015 Prices) | Quarterly Change | Key Events/Observations |
|---|---|---|---|
| 2014-2019 | Gradual increase (steady growth) | Positive growth | Consistent economic expansion. |
| Q1 2020 | R1.147 trillion | Flat/stable | Pre-pandemic peak in GDP. |
| Q2 2020 | R954 billion | Sharp decline | COVID-19 pandemic impact; GDP fell significantly. |
| 2020-2022 | Recovery | Positive growth | Gradual recovery post-pandemic. |
| 2023 (Q2) | All-time high (over R1.161 trillion) | Positive growth | Economy surpasses pre-pandemic levels. |
| 2023 (Q3) | R1.161 trillion | -0.3% contraction | Unexpected contraction; economists had predicted 0.5% growth. |
| Year-over-year | R1.161 trillion | +0.3% | Indicates weak annual growth momentum. |
South Africa’s real GDP amounted to R1.161 trillion in the third quarter, reflecting a decrease from its record-breaking performance in the preceding quarter. This data, expressed in constant 2015 prices and seasonally adjusted, was released by Statistics SA.
The agricultural sector emerged as the primary contributor to this decline, contracting by a striking 30% during the quarter.
According to Statistics SA, the agricultural industry endured significant challenges during this period.
Drought conditions severely impacted the yields of field crops, including maize, soya beans, wheat, and sunflower. Additionally, adverse weather disrupted the production of subtropical fruits, deciduous fruits, and various vegetables in different parts of the country.
When excluding the agricultural sector, the broader economy would have achieved a 0.4% expansion, as noted by Bloomberg.
Industry-specific growth rates for the third quarter, compared with the second quarter, paint a mixed picture. Data provided by Statistics SA highlighted other areas of concern.
South Africa’s economic challenges are part of a larger global story. In our guide on countries with the highest debt, discover how different nations are navigating mounting debt and the implications for global markets. It’s a must-read for a broader understanding of economic trends.
| Industry | Growth Rate (Q3 2024 vs. Q2 2024) | Contribution to GDP Growth | Key Observations |
|---|---|---|---|
| Electricity, Gas & Water | +1.6% | Positive | Largest contributor to growth. |
| Finance, Real Estate & Business Services | +1.3% | Positive | Significant contributor to GDP growth. |
| Mining & Quarrying | +1.2% | Positive | Positive growth despite challenges in the sector. |
| Construction | +1.1% | Positive | Moderate recovery in construction activity. |
| Personal Services | +0.5% | Positive | Slight contribution to growth. |
| Manufacturing | +0.5% | Positive | Modest growth in manufacturing activity. |
| General Government Services | -0.1% | Neutral | Minimal change. |
| Trade, Catering & Accommodation | -0.4% | Negative | Affected by weak vehicle sales and slow activity in restaurants and fast-food outlets. |
| Transport, Storage & Communication | -1.6% | Negative | Notable decline, dragging down GDP. |
| Agriculture, Forestry & Fishing | -28.8% | Negative (major drag) | Significant contraction due to poor harvests of grain and vegetables. |
Transport services, trade, and government expenditure all recorded slowdowns. In the trade sector, weak vehicle sales and reduced activity at restaurants and fast-food outlets were notable contributors to this sluggish performance. Additionally, reduced employment within the civil service acted as another drag on overall economic growth, as highlighted by Statistics SA.
Exports also saw a significant decline of nearly 4%, marking the steepest drop in three years.
This decline in export activity was accompanied by lower levels of passenger vehicle exports and imports, alongside reduced trade in precious metals.
The weakness in export activity was exacerbated by declining global demand, high shipping costs, and disruptions at major ports.
On a more positive note, the financial sector, the largest contributor to South Africa’s GDP, recorded growth during this period.
| Industry | Percentage Contribution to GDP | Key Observations |
|---|---|---|
| Finance | 24% | Largest contributor, reflecting its importance as SA’s biggest economic sector. |
| Personal Services | 16% | Second-largest contributor, showing strong activity in services. |
| Manufacturing | 15% | Major contributor, highlighting industrial activity’s role in the economy. |
| Trade | 14% | Significant portion, encompassing retail and wholesale trade sectors. |
| Government | 9% | Government activity contributes nearly a tenth of GDP. |
| Transport & Communication | 8% | Reflects the infrastructure and connectivity sector’s importance. |
| Mining | 7% | Vital sector but smaller compared to finance and trade. |
| Electricity, Gas & Water | 4% | Smaller contributor, representing utilities’ role in the economy. |
| Construction | 2% | Relatively small contribution, indicating limited construction activity. |
| Agriculture | 2% | Smallest contributor, affected by recent sectoral challenges. |
Encouraging signs emerged in other areas as well.
In mining, stronger production of manganese and chromium ore provided a boost, while manufacturing saw growth driven by increased output of iron, steel, and machinery. These sectors helped offset some of the downward pressure on the economy.
The construction industry achieved a notable 1.1% growth rate, marking its most significant improvement in two years.
Household spending also displayed resilience, with the recreation and culture sector experiencing the highest growth rate of 1.2%.
Delving deeper into this category, gambling played a prominent role in driving the increase. Statistics SA cited data from the South African National Gambling Board, which reported a 26% rise in gross gambling revenue to R59.3 billion for the 2023/24 period, following an even more substantial 37% surge in the previous year.
The unexpected GDP contraction is likely to increase pressure on the South African Reserve Bank, which has implemented only a modest 50-basis-point interest rate cut this year, significantly less than the rate cuts observed in many other countries.
Following the release of the GDP figures on Tuesday morning, market-based forward-rate agreements reflected expectations of 73 basis points worth of interest rate cuts over the next year. This represented a slight increase from the 69 basis points priced in earlier in the day, as reported by Bloomberg.
The repo rate plays a crucial role in shaping economic activity and consumer behavior. Our article on repo rate increases unpacks how these adjustments influence borrowing costs, inflation, and overall economic growth, helping you stay informed about the forces shaping your finances.
Conclusion
The unexpected 0.3% contraction in South Africa’s GDP for the third quarter underscores the country’s economic fragility, driven largely by a sharp decline in the agricultural sector and sluggish performance in trade, transport, and government services. While the finance and manufacturing sectors provided some stability, the overall weak annual growth of 0.3% highlights the need for targeted interventions to address structural vulnerabilities, such as climate resilience in agriculture and infrastructure improvements. With pressure mounting on the Reserve Bank to implement further monetary easing, South Africa faces a critical juncture in reviving sustainable economic momentum.
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