South Africa is heading for a technical recession as its economy will likely shrink further in the fourth quarter with increased load-shedding and Transnet’s backlogs limiting economic output.
This is feedback from several economists following the release of South Africa’s third-quarter GDP data, which showed the economy shrank 0.2%. This was due to five industries recording negative growth between the second and third quarters of 2023.
Old Mutual’s chief economist Johann Els told 702 that it is highly possible the country will slide into a technical recession at the end of 2023. “Whether we are heading into a technical recession? That is quite possible with weak growth. It is possible that the fourth quarter will also slip into negative growth,” Els said.
He is particularly concerned about the volatility of the mining, manufacturing, and agricultural sectors, which have an outsized impact on the country’s overall GDP. “These are the swing sectors,” he said. “Because they tend to be so volatile, they could easily drag overall GDP into negative territory by themselves.”
Positively, South Africa is becoming less reliant on mining and manufacturing, in particular, with the services sector gradually making a greater contribution to the country’s GDP. Els said it does not really matter if South Africa enters into a technical recession, as its growth has been dismal for years.
“It is not as important as the fact that growth is dismal and has been dismal for quite some time. That is reflected in the numbers,” he said. “The point is that growth is just tiny in South Africa. It has been for many years. It is weaker than what we need and is weaker than our trading partners and competitors.”
Stanlib chief economist Kevin Lings echoed Els’ thoughts in a social media post following the release of the GDP data. Lings said the country’s GDP was “hurt by a decline in agriculture, mining, manufacturing, construction and retail”. “South Africa can experience a technical recession given the recent increase in electricity outages, high interest rates and problems with port and rail capacity,” he said.
The country’s fourth-quarter GDP will be hit by the return of elevated levels of load-shedding, which reached stage 6 once again. This will be compounded by the backlogs at South Africa’s ports, with billions of rands of goods stranded at sea, unable to enter the country and, more importantly, valuable exports unable to get to market. These constraints remain binding on the economy, and any improvement with regard to their performances will positively impact economic growth.
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