By Thanda Sithole
Consistent with the weakness observed in the goods-producing sectors, the economy performed poorly in the first quarter, with weak demand filtering through to the services-providing sectors. GDP contracted by 0.1% q/q in 1Q24, following an upwardly revised 0.3% (previously 0.1% q/q) in 4Q23. The outturn was below our and Reuters' consensus predictions of a 0.1% quarterly expansion, although the prediction range among analysts was wide, reflecting divergent views amid elevated uncertainty and weak fundamentals. The poor performance was broad-based, with six out of ten sectors recording contraction.
Despite the quarterly weakness, GDP expanded by 0.5% (versus our expectation of 0.6%) in 1Q24 compared to the corresponding quarter last year, indicating a slow but steady growth above pre-pandemic levels. Stability from the post-election government will be crucial for preserving economic progress, and the uninterrupted implementation of economic reforms will be vital to boosting growth and employment.
Outlook: Cautiously optimistic but the climate remains fluid
This data does not alter our cautiously optimistic economic growth view, although the domestic situation remains precarious as political negotiations continue. We anticipate economic growth to rebound in the second quarter, supported by the absence of load-shedding and potential boosts from election-related spending. However, the extent of the second-quarter rebound may be limited by the weakness already observed in the manufacturing PMI and new vehicle sales.
Overall, we project GDP growth to increase from 0.6% last year to 1.6% by 2026, although this is insufficient to significantly improve living standards. Our cautiously optimistic growth prognosis is based on assumed improvements in electricity supply, moderating inflation, and imminent, albeit limited, interest rate cuts.
Zoning into sectors: Goods-producing sectors largely dragged growth
The quarterly decline in GDP was broad-based as indicated in figure 2:
Demand-side growth drivers
Household consumption expenditure declined by 0.3% q/q in 1Q24, after expanding by a mild 0.1% in 4Q23. Real spending on durable goods declined by 1.6%, semi-durables by 4.1% and services by 0.2%. Meanwhile, non-durable goods consumption increased by 1.3%. The weakness in consumption spending reflects weak consumer fundamentals and subdued confidence.
Gross fixed capital formation (total fixed investment) declined by 1.8% q/q, after declining by 0.2% in 4Q23. This reflected weakness in private sector fixed investment which experienced a 3.3% quarterly decline, consistent with prevailing uncertainty and subdued business confidence. Fixed investment by government and public corporations increased by 2.4% and 1.3%, respectively. Fixed investment weakness was broad-based across all types of assets bar non-residential buildings which expanded by 3.6% and transfer costs which expanded by 7.2%.
There was also inventory destocking to the value of R5.5 billion, reflecting drawdowns by the manufacturing, mining and personal services sectors. Exports of goods and services declined by 2.3% q/q, while imports declined sharply by 5.1%, resulting in the narrowing of the net trade deficit.
