The GDP, Absa and S&P PMIs, current account deficit, new vehicle sales, trade surplus and consumer confidence were all released this week.
It was a busy week on the economic data front, dominated by the disappointing GDP figures for the third quarter that will definitely affect the economic growth rate for 2024. On the other hand, consumer confidence was the best since 2019 for the festive season and far better than it was a year ago.
Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says most of the data can perhaps best be summarised as disappointing, yet not unexpectedly so, as the huge drop in the agricultural component of the gross domestic product (GDP) meant that the economy contracted on a quarterly basis.
She also points out that Moody’s affirmed South Africa’s rating at the current two levels below investment grade as expected.
“But unlike S&P Global, which revised its outlook from stable to positive about two weeks ago, Moody’s kept it unchanged.
“Meanwhile, S&P Global has put Transnet on CreditWatch, which signals a possible downgrade. Yesterday, the finance minister said the agency initially wanted to downgrade Transnet, but that it was able to convince S&P to hold off on doing so.”
In commodity markets, the (postponed) OPEC+ meeting took place yesterday. IJssel de Schepper says It was widely expected that OPEC+ would continue with its output cuts and delay an increase in production until the first quarter of 2025.
Eight members decided to extend their “voluntary adjustments” of 2.2 million barrels per day until the end of March, before these cuts “will be gradually phased out” on a monthly basis until the end of September 2026. However, all this remains “subject to market conditions”.
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Is the Rand back under R17/$?
IJssel de Schepper also points out that the Rand exchange rate crept closer to R18/$ but, at the time of writing, did not manage to dip below this level. “Still, it was a touch stronger against the dollar and euro week-on-week. The JSE Alsi had a relatively solid week, closing over 2% higher from last Thursday.”
Bianca Botes, director at Citadel Global, says the Rand picked up strength towards the end of the week, as it looks to retest the R18.00/$ mark. “The Rand was last below R18.00/$ in mid-November when it strengthened by 1.67%, reaching R17.50/$.”
The Rand broke through the psychological barriers of R18/$ on Friday afternoon and was trading at R17.99/$.
Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say in commodity markets, the Brent crude oil price was little changed after OPEC+ postponed its supply decision by three more months, while gold recovered some losses on Friday morning, while platinum was sharply lower for the week.
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GDP shocks and disappoints
South Africa’s GDP contracted by 0.3% compared to the second quarter, largely due to the grossly underperforming agricultural sector. The agricultural industry declined by 28.8% compared to the second quarter, a much steeper contraction than expected. Excluding agriculture, GDP would have grown by 0.4% in the third quarter.
IJssel de Schepper says the contraction in agricultural GDP sets the entire 2024 back and means that the economy will be lucky to see a marginal acceleration from the 0.7% growth recorded in 2023. “Our full-year forecast of 1% has to be revised downwards on the back of a downward revision to the second quarter and the disappointing third quarter outcome.
“We do expect revisions to the agricultural GDP component for the third quarter but still, growth of around 0.8% seems like a more likely outcome than the 1% we had before. That means that growth must accelerate quite meaningfully in the fourth quarter (and/or a relatively large revision to the third quarter GDP must be made). For now, 2.2% for next year still seems possible.”
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GDP will be boosted in fourth quarter
Matshego and Nkonki say the decline in GDP by 0.3% was far below their and the market’s expectation of 0.5%. “The third quarter GDP outcome suggests that the economy is not entirely out of the woods yet. Excluding agriculture, the economy grew by 0.4% and consequently we still expect the economy to recover in the fourth quarter before strengthening and broadening throughout 2025.
“The boost will likely come from continued improvements in consumer demand as inflation remains subdued and interest rates start to decline more meaningfully, bolstering real incomes and lowering borrowing costs.
“However, slower government spending, a modest fixed investment recovery and the persistent drag from net exports will likely contain the boost from more robust consumer spending to GDP over the fourth quarter. Altogether, we forecast GDP growth of around 0.5% in 2024 and 1.5% in 2025.”
Botes says South Africa’s GDP contraction of 0.3% failed to meet expectations of 0.4% growth in the third quarter. “The disappointment was caused by a weakness in the agriculture and transport industries and follows the decent 0.4% reported growth for the second quarter.”
ALSO READ: Current account deficit narrows broadly as expected in second quarter
Deficit on the current account narrowed slightly in third quarter
The deficit on the current account of the balance of payments narrowed slightly in the third quarter. The shortfall went from R75 billion in the second quarter to R71 billion in the third quarter, which meant that as a percentage of GDP, the deficit was stable at 1%, Katrien Smuts, economist at the BER, says.
“The slightly weaker trade surplus (R180 billion to R177 billion) was more than offset by a narrower deficit on the balance of services, income and current transfers (R255 billion to R248 billion), causing the narrower overall deficit.”
Matshego and Nkonki say smaller shortfalls in services and current transfers contributed to the improvement, offsetting deteriorating income and trade accounts. “Altogether, the current account deficit is forecast to widen in 2025 after narrowing to around 1.2% of GDP this year from 1.6% in 2023.”
ALSO READ: Consumer confidence slips in fourth quarter, but still better than last year
Consumer confidence best since 2019 for festive season
After soaring from -15 index points in the first quarter of 2024 to a 5-year high of -5 in the third quarter, the FNB/BER Consumer Confidence Index (CCI) edged one point lower, to -6 in the fourth quarter.
Smuts says the -6 is the best festive season consumer confidence reading since 2019 and far better than the -17 index points measured during the third quarter. “Despite the one-point decline in consumer sentiment, the upsurge in consumer confidence since the end of 2023 points to a marked increase in consumers’ willingness to spend during this holiday season.
“Consumers’ spending ability has improved notably, bolstered by lower inflation, 50-basis points of interest rate cuts and an estimated R40 billion in the two-pot retirement system payouts in 2024.
ALSO READ: Absa PMI drops to 48.1 in November, manufacturing suffers
PMIs moved in different directions
The Absa purchasing managers’ index (PMI) decreased by 4.5 points in November, reverting back to contractionary territory at 48.1 index points, down from 52.6 in October. Smut says this points to some loss of momentum in the recovery seen over the last two months.
“However, the manufacturing PMI (and official factory sector data) have been volatile this year and therefore, this is not unexpected.”
The S&P PMI continued to expand, increasing to 50.9 in November from 50.6 the month before, its fourth month above the neutral 50-point mark. Smuts says both PMIs consistently show more upbeat expectations of business conditions.
“Respondents tend to be hopeful about the next year, backed by local political stability, lower inflation, reduced interest rates and greater consumer demand. However, the global political outlook has become more complicated, with concerns about global growth and trade dynamics following Trump’s election as US president in November.”
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New vehicle sales increased for the second month
According to naamsa, new vehicle sales increased to 48 858 in November, 5.8% higher than the October number and 8.1% higher than in November 2023. November marks the second consecutive month of increases in new vehicle sales, signalling there may be a turnaround in the domestic market.
However, export sales were down by 28.6% compared to November 2023 and year to date export vehicle sales were also lower by 23.9%, Smuts says.
Matshego and Nkonki also point out that passenger vehicle sales accelerated from 14.5% in October to 20% in November. Of the 35 101 units sold, car rentals accounted for 19.5%. “While seasonal demand supported rental sales, the uptick indicates a likely turnaround in consumer demand in response to low inflation and easing monetary policy.”
They say according to the Automotive Business Council the slide in exports reflects a challenging macroeconomic context and a weaker rand.
ALSO READ: SA starts year with trade deficit after surplus in 2023
Trade surplus widened for second month
The trade surplus widened for a second consecutive month to R14.7 billion in October from R12.8 billion in September. Exports grew faster than imports, up 5.3%, after increasing by 3.4% in September.
Matshego and Nkonki say the trade surplus will likely narrow in 2025. “The anticipated recovery in domestic demand will support imports, while exports will still be contained by generally inefficient logistics, slow but uninspiring global growth and relatively stagnant commodity prices.”
