GDP Commentary Q3 2024

By Reza Hendrickse, Portfolio Manager at PPS Investments

The South African economy went backwards in the third quarter, with real GDP contracting 0.3% quarter-on-quarter. Economists were expecting modest growth, and so were many South Africans and investors, eager to see the improved sentiment this year translate into increased business activity.

Agriculture was the largest detractor this quarter, contributing -0.7% to GDP growth, as activity related to field crops, animal products and horticulture declined. Western Cape flooding and an avian flu outbreak were largely to blame. The services sector was the largest positive contributor to growth, adding 0.3% to GDP growth, through increased activity in finance, real estate and business services.

We are reluctant to read too much into this quarter’s disappointing number, particularly because agriculture is an inherently a volatile sector. Encouragingly, mining, the other important but volatile primary sector component grew during the third quarter.

Although we haven’t yet seen a meaningful rebound in the SA economy, we are satisfied with the direction of travel. 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.

Portfolio positioning across the PPS range of funds reflects our expectation of a local cyclical economic upswing and better growth going forward. Earlier in the year we upweighted our allocation to SA equity, with the view that SA growth assets have potential to do well 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.