South Africa Averts Recession

South Africa Averts Recession. South Africa’s economy, after a decline in the GDP growth rate in the third quarter (Q3) of 2023, has averted a technical recession in the fourth quarter. Thanks to fewer rotational power cuts, which helped energy-intensive industries (including mining) rebound. In this article we are going to see the fourth quarter and Annual data of South Africa, and how it averted recession. Let’s get started.

Fourth Quarter GDP data of South Africa

On 5th March 2024, the Department of Statistics of South Africa released data on Gross Domestic Product (GDP) for the Fourth Quarter of 2023. The South African GDP (GDP) measured on production.

GDP by Production

In the Fourth Quarter (hence Q4) of 2023, South Africa’s Gross Domestic Product (GDP) increased by 0.1% in comparison with a contraction of 0.2% in the previous quarter (i.e. third quarter – Q3).

The major contributors to the Q4 GDP are:

  • Transport, Storage and Communication increased by 2.9% and contributed 0.2% to GDP Growth;
  • Mining and Quarrying industry increased by 2.4% and contributed 0.1% to GDP growth;
  • Personal Services Industry increased by 0.9% and contributed 0.1% to GDP growth;
  • Finance, Real Estate and Business Services Industry increased by 0.6% and contributed 0.1% to GDP growth.

There was an increased economic activity in all forms of transportation – land transport, air transport, transport support services and communications. South African economy witnessed an increase in economic activity for diamonds, chromium ore, coal and platinum group metals (PGMSs).

Health and education also witnessed an increase in economic activities. Financial Intermediation, auxiliary activities, real estate activities and business services all reported increases in economic activities.

Growth GDP

Source: Statistics South Africa

The fourth quarter of 2023 witnessed a decline in the trade, catering, and accommodation industry. These industries declined by 2.9% and contributed -0.3% to GDP. Retail trade, wholesale trade, motor Trade, food & beverages and accommodation, all these industries’ economic activities declined in Q4.

Due to decreased economic activities in field crops, animal products and horticulture products, there was a decline in the agriculture, forestry, and fishing industry by 9.7% in Q4 of 2023, contributing -0,2 of a percentage point to GDP growth.

Expenditure on GDP

In the fourth quarter, the Real GDP expenditure grew by 0.1%.

Household final consumption expenditure by 0.2% and contributing 0.1% to GDP growth. There was an increase in durable goods and services. The primary positive contributors to the increase in HFCE were expenditures on the

  • “Other” category increased by 3.1% and contributed 0.4%
  • Transport increased by 0.4% and contributed 0.1% and
  • Communication increased by 1.1% and contributed 0.1

The primary factors of negative contributions were expenditures on gas & other fuels, housing, water, electricity, food & non-alcoholic beverages, restaurants & hotels and clothing & footwear.

In the fourth quarter, the final consumption expenditure by the general government declined by 0.3%. This is mainly driven by a decline in purchases of goods & Services and compensation of employees.

Gross Fixed Capital Formation

In the Fourth Quarter of 2023, the total gross fixed capital formation declined by 0.2%. The primary factors responsible for the decline are:

  • Residential buildings declined by 3.9% (i.e. -3.9%) and contributed -0.5%
  • Transport equipment decreased by 3.0% (i.e. -3.0%) and contributed -0.3%
  • Construction works declined by 1.1% (-1.1%) and contributed -o.2%
  • Machinery & other equipment decreased by 0.4% (i.e.-0.4%) and contributing -0.2%

In the fourth quarter of 2023, the inventories increased by (Rand) R7.5 billion (seasonally adjusted and annualised value). Significant growth contributed to the accumulation of inventory in three sectors: trade, catering & accommodation, manufacturing, electricity gas & water.

Trade

During the Q4 of 2023, the net exports contributed negatively to expenditure on GDP. Exports of goods & services increased by 0.6%. This is mainly due to increased trade in prepared foodstuffs, vegetable products, chemical products, beverages & tobacco, and base metals & articles of base metals.

Imports of goods and services increased by 4.0% mainly due to increased trade in vegetable products, chemical products and mineral products.

Annual Estimates of 2023

Annual Real GDP increased by 0.6% in 2023 in comparison with an increase of 1.9% in 2022.

As per the recent primary indicators, Real GDP grew by 0.6% in 2023, after an increase of 1.9% in 2022.

The real GDP grew by 0.6% annually in 2023. This is mainly because of higher economic activities in the finance, real estate and business services sectors, which contributed 0.4% to GDP with a growth rate of 1.8%; Transport, storage and communications, which contributed 0.3% to GDP with a growth of 4.3%; personal services, contributed 0.3% to GDP with a growth rate of 2.0% and manufacturing, which contributed 0.1% to GDP with a growth of 0.5%.

In 2023, the agriculture, forestry & fishing; catering & accommodation; trade; electricity; mining & quarrying divisions and gas & water witnessed negative growth.

Expenditure on GDP in 2023

Expenditure on GDP grew by 0.7% in 2023 in comparison with an increase of 1.9% in 2022.

Household Final Consumption Expenditure (HFCE) grew by 0.7%. It contributed 0.5% to the GDP.

The major contributors to the growth of 0.7% in HFCE were expenditure on

  • Restaurants and hotels grew by 20.3% and contributing 0.9%
  • Clothing and footwear grew by 5.0% and contributing 0.2%
  • The health sector grew by 3.6% and contributed 0.2%
  • Communication grew by 2.3% and contributed 0.1%
  • Transport grew by 0.5% and contributed 0.1% and
  • Education grew by 1.7% and contributing 0.1%
Gross Fixed Capital Formation

In 2023, the Gross Fixed Capital Formation grew by 4.2% with a share of 0.6% of the total growth. The changes in inventories contributed
-0.6% of the total growth.

Net Exports contributed -0.2% to the growth in expenditure on GDP.

For the year 2023, the Department of Statistics projected that the Nominal GDP would reach (Rand) R7 trillion. The Nominal GDP at market prices was R6.97 trillion which is R342 billion more than in 2022.

My Perspective/ Conclusion

The data shows mixed signals overall, and it is difficult to pinpoint which is the major contributor of the GDP growth. Though South Africa has averted the technical recession, the growth remains subdued. The Central Bank’s focus on inflation can reflect on the economy sooner or maybe at the end of the first half of 2024. 

The National Treasury forecasts that the economy to grow at 1.3% this year (i.e. 2024). It seems now even that growth rate is a little far. Even if the economy grows at 1.3%, it seems to be insufficient growth to tackle poverty and unemployment. The South African government needs to solve their energy crisis sooner to achieve a higher growth rate. This is an election year for South Africa, which adds further burden and pressure on thepresent government.

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