The slump after the GNU “sugar high” hit this week as the South African economy contracted by 0.3% in the third quarter, against broad expectation of an increase in GDP.
The contraction was driven by a steep decline in agriculture, forestry and fishing. Agriculture minister John Steenhuisen attributed the knock to the sector to an El Niño-induced midsummer drought which weighed on summer crop production, as well as weaknesses in the livestock subsector.
Without the sharp decline in agriculture, the economy would have grown in line with expectations. Analysts agree that the shock figures provided a much-needed reality check after the euphoria on the back of a peaceful political transition. It indicates that rebuilding the economy is urgent.
“Q3 GDP was certainly a big downside surprise,” says Citi economist Gina Schoeman. “From expecting it to rise just half a percentage point, it instead contracted by 0.3%. This is disappointing given that it is part of the more constructive GNU outlook.”
In the same quarter last year agriculture declined sharply by 19.4%, but the contraction in this quarter was 28.8%, contributing 0.7 of a percentage point to the negative GDP growth. Stats SA attributed this to decreased economic activities reported for field crops.
Steenhuisen tells the FM the field crop underperformance is mainly centred on the production of summer grains and oil seeds. South Africa’s 2023/2024 summer crop harvest is down 23% from the previous season, at 15.4Mt.
If growth rates, economic activity [and] business confidence don’t improve markedly and consistently, then it’s going to be difficult for the GNU to survive
— Chris Hattingh
“The livestock subsector, which accounts for nearly half the sector’s value, has also not fully recovered,” Steenhuisen says. “The subsector faces relatively higher feed costs and lingering animal diseases, contributing to the underperformance this quarter.
“We are seeing the tail end of the issues that have beset the sector and the next year will be a recovery period.”
For Schoeman, what the latest GDP figures illustrate is the need to build an economy that can withstand such shocks.
She says: “We need the type of economy that is strong enough and resilient enough so that when we are hit by things such as weather shocks, which pull down maize production, the rest of the economy does not have to be impacted into negative territory. But it is early days. We are expecting better growth in the fourth quarter,” Schoeman says.
Chris Hattingh, executive director at the Centre for Risk Analysis, says simply keeping the lights on is no longer enough and reforms have to begin taking shape a lot faster. He describes the sobering GDP outlook as confirmation that the GNU “was a sugar high”. While the GNU deserves credit for the positive sentiment towards South Africa — with green shoots in the form of possible removal from the Financial Action Task Force greylist and positive ratings agency forecasts — the GNU has to articulate its goals and targets more clearly, he adds.
“The GNU does likely have a limited time span, especially in its current constellation. And if growth rates, economic activity [and] business confidence don’t improve markedly and consistently, then it’s going to be difficult for the GNU to survive. So I want to give credit to those who are working in the GNU to try to make things work, to reform where possible. But the latest GDP numbers confirm just what a big task the GNU has ahead of it.”
The GNU partners are yet to finalise their medium-term development plan, which the 10 participating parties agree should centre on growing the economy and creating jobs.
Stats SA says the transport, storage and communication industry also contracted by 1.6%, contributing -0.1 of a percentage point to the overall slump. Decreases were recorded across sectors including land transport and transport support services, trade, catering and accommodation, wholesale trade, motor trade and food and beverages. General government services also contracted by 0.1%, mainly due to decreased employment in national and provincial government and extrabudgetary institutions.
The finance, real estate and business services industry increased by 1.3%. Increased economic activity was also registered in finance, insurance and pension funding, auxiliary activities, real estate activities and other business services.
Three of the 10 manufacturing sectors reported positive growth rates, says Stats SA. The largest positive contribution was reported for the basic iron and steel, nonferrous metal products, metal products and machinery division. The mining and quarrying industry increased by 1.2%, contributing 0.1 of a percentage point. Increased economic activities were reported for manganese and chromium ore.
Fourth-quarter GDP figures are scheduled for release in March 2025.
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