The Port of Durban. Risks to FNB’s medium-term projections included a further deterioration in infrastructure such as energy, ports and rail, geopolitical tensions and demand dynamics from South Africa’s major trading partners. Picture Leon Lestrade/ Independent Newspapers
Gross domestic product (GDP) increased only 0.1% in the fourth quarter of 2023 over the previous three months, only narrowly avoiding technical recession after six out of 10 industries kept the economy growing, data from Statistics SA showed yesterday.
After the data was released the rand weakened to R19 to the dollar.
The 0.1% growth was “lower than our and the market’s forecast of 0.3%. For the year as a whole, the economy expanded by 0.6%, down significantly from 1.9% in 2022,” Nedbank Group’s Economic Unit said in a note yesterday.
“‘The good news is South Africa has, after all, narrowly avoided a ‘technical recession’ (two successive quarters of negative growth) by registering a scant GDP growth rise of 0.1% … This followed a -0.2% GDP decline in 3Q 2023,” said NWU Business School economist Professor Raymond Parsons.
He said the bad news was that, on the basis of economic growth just being 0.6% for 2023 as a whole, the economy was only likely to see about 1% growth this year, which was “simply too low to meet South Africa’s socio-economic challenges”.
Nedbank also predicted the economy would fare slightly better in 2024, but that the recovery was only expected in the second half.
“In the first six months, economic activity will likely remain weak, weighed down by the combined weight of continued power outages and transport bottlenecks, soft global demand, low international commodity prices and the ongoing squeeze emanating from high domestic interest rates,” the bank said.
FNB senior economist Thanda Sithole said the fourth-quarter GDP had no bearing on their medium-term growth prognosis.
“We maintain the view that economic growth bottomed out last year. We anticipate a gradual improvement, particularly as the load-shedding crisis eases, driven by reform-triggered private sector embedded generation and rooftop solar installations over the past year.”
Sithole said, however, that real GDP per capita growth remained in contraction, and only a significant boost in economic growth could spur employment and stabilise government debt.
Sithole said risks to FNB’s medium-term projections included a further deterioration in infrastructure such as energy, ports and rail, geopolitical tensions and demand dynamics from South Africa’s major trading partners. Domestic demand was likely to be further suppressed by persistent inflation, limited labour income growth and delayed interest rate cuts.
Parsons said a red flag in the GDP data continued to be the further 0.2% decrease in gross fixed capital formation in the fourth quarter, which confirmed a negative trend in private fixed investment in 2023.
“Higher fixed investment levels are needed to drive job-rich growth in the period ahead and underscores the importance of investor confidence. The message remains that these negative trends are reversible, and investor sentiment can be strengthened if energy security can be assured, logistical obstacles resolved, and policy uncertainty reduced,” he said.
FNB’s Commercial Property Finance property sector strategist John Loos said the GDP growth rate was insufficient to boost commercial property valuations growth back into positive “real” territory - a rate where growth in property values beats general inflation.
Since 2015, real inflation-adjusted commercial property values had been on a declining trend, “and we believe that 2023 was likely another year of such real decline”, he said.
He said the real residential fixed capital formation decline of -3.9%, quarter on quarter, the third consecutive quarter of decline, reflected the interest rate-driven slowdown in residential demand.
Anchor Capital fixed income investment analyst Casey Sprake said six industries recorded positive growth between the third and fourth quarters, with transport, storage, communication, mining and quarrying and the electricity sectors posting the strongest gains.
The transport, storage and communication industry made the biggest positive impact, expanding 2.9% quarter-on-quarter and contributing 0.2 of a percentage point to GDP growth.
Increased economic activity was reported for all transport services across the industry.
Mining activity was up 2.4%, pushed higher by stronger production figures for platinum group metals, chromium ore, coal and diamonds. Conversely, the traditional heavyweights of iron ore and gold were down in the quarter.
On the downside, trade, agriculture, construction, and government were also weaker. Agriculture, forestry and fishing had a notably turbulent quarter, shrinking by 9.7%.
“The agricultural sector, in particular, is unfortunately positioned to struggle significantly under the prevailing structural issues facing the domestic economy. Load shedding continues to hamper growth in the industry, given how reliant the sector is on energy,” Sprake said.
BUSINESS REPORT