Sandton CBD economy South Africa's economy is still on a positive trajectory. File picture: Karen Sandison / Independent Media.
Image: Karen Sandison
South Africa’s third-quarter GDP results came as a reality check to anyone who had been anticipating a quick economic rebound amid the improved sentiment seen since the formation of the Government of National Unity (GNU).
Whereas many economists were expecting modest growth, real GDP contracted 0.3 percent quarter-on-quarter.
Agriculture was the largest drag, declining by 28.8%, and pulling the country’s overall GDP down by 0.7%.
The services sector emerged as the largest positive contributor to growth, adding 0.3% to GDP, due to increased activity in real estate, business services and finance. The mining and construction sectors also showed encouraging growth during the quarter, expanding by 1.2% and 1.1% respectively.
Economists and investors say they’re reluctant to read too much into the third quarter’s disappointing GDP performance as agriculture is an inherently volatile sector.
“Although we haven’t yet seen a meaningful rebound in the SA economy, we are satisfied with the direction of travel,” said Reza Hendrickse, Portfolio Manager at PPS Investments.
“The economy is performing better than last year, considering growth of 0.4% during the first 9-months of 2024 compared to the first 9-months of 2023. Prior headwinds have also become tailwinds, such as much lower inflation and interest rate cuts.
“The business environment has also improved with the business-friendly political regime shift. One of the bright spots in this quarter’s GDP release worth highlighting, is the secondary sector (i.e. manufacturing) which recorded growth of 0.7%, on top of last quarter’s rebound,” Hendrickse added.
PPS said portfolio positioning across its range of funds reflects its expectation of a local cyclical economic upswing, and earlier in the year it upweighted its allocation to SA equity with the view that local growth assets have the potential to perform and remain attractively priced.
“Although investor sentiment towards emerging markets has admittedly softened post Trump’s victory, we do expect opportunities to arise from any pickup in volatility,” PPS said.
Good news for interest rates?
Standard Chartered chief economist Razia Khan concurred that South Africa’s economic outlook remained positive despite the third quarter performance, Reuters reported.
David Omojomolo, analyst at Capital Economics, said the disappointing GDP numbers could even serve as a catalyst for the reserve bank to continue with its interest rate cutting cycle.
Most economists appear to believe that 2025 will bring stronger GDP numbers, with the International Monetary Fund (IMF) predicting a growth rate of 1.5 percent for next year.
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