Maarten Ackerman, Chief Economist at Citadel Investment Services, comments on South Africa’s Q3 2024 Gross Domestic Product (GDP) Data announced yesterday by StatsSA.

South Africa's weak economic growth of -0.3% for the third quarter of 2024 (quarter on quarter annualised) shows that the economy is still “flatlining” since the COVID era, and with global dynamics likely to shift when Donald Trump returns to the White House, South Africa may face some new economic headwinds in 2025, according to Maarten Ackerman, Chief Economist at Citadel.

“The Gross Domestic Product (GDP) numbers paint the very difficult picture we've been in for the last four years, with the economy almost flatlining since COVID, because the country has not yet been able to get growth going sustainably,” he says. “In terms of our Q3 GDP numbers and the way forward, we do however think that growth is likely to pick up, probably to about 1.7% in 2025 coming off this low base. If government keep implementing policy reform, we may be able to get to about 2% in the next three years.”

GDP HIGHS AND LOWS PER INDUSTRY

Statistician-General, Risenga Maluleke, announced this week that real GDP quarter-on-quarter growth, which was seasonally adjusted, now sat at -0,3%, while year-on-year growth sits at 0,3%. This means that the economy contracted by 0.3% in the past quarter. The contraction was fuelled by significant strain on four industries. Agriculture, forestry and fishing were down by a significant 28.8%, transport, storage and communication declined by 1.6%, trade, catering and accommodation dipped by 0.4% and general government services declined by 0.1%. The news caused the rand to slip.

Mining, which is typically a significant earner for the economy, displayed a lacklustre 1.2% growth in the past quarter. The growth it did achieve was thanks to increased economic activity for manganese and chromium ore. Both metals are critical in steel production, renewable energy technologies and defence systems. “Although the numbers are low, we are glad to see mining, construction and even manufacturing making a positive contribution to our GDP. These are the sectors that get the economy going and where we can create more jobs.”

“Agriculture is a very small but important sector. It's less than two percent, but it's a major job creator. We know it's volatile. You can get quarters like this one where it makes a very negative contribution, but if we look at the long-term, it is a sector that keeps on supporting the economy.”

Ackerman also points out a key piece of good news: “We had another positive quarter in gross fixed capital formation. Hopefully, this will reset the trend after we saw seven very strong quarters off the back of the solar boom, followed by a couple negative quarters as the solar boom topped out. We need to see positive quarters on that metric because that's the only way that we're going to rebuild capacity in the economy.

WHAT THE NUMBERS MEAN FOR ECONOMIC SENTIMENT

“As the Minister of Finance made quite clear in the October Medium Term Budget Policy Statement (MTBPS), the Government of National Unity (GNU) and the positive sentiment and hope that came with that are not enough to get the economy out of its growth slump. There's a lot of hard work ahead and the Q3 GDP numbers just reconfirmed that. The challenge before us is to get the economy to 1.8% growth and above, as stated in the MTBPS.”

South Africa’s economic growth numbers had a “dampening impact on the positive sentiment that we've seen after the election”. “It is a cold shower again just like the budget. We wanted the numbers to show that there might be hope for the future, but the reality on the ground is still not reflecting that entirely.”

HOW INTEREST RATES COME INTO THE PICTURE

Ackerman explains the South African Reserve Bank’s primary current focus is on inflation rather than growth. “We're well below the interest rate target at this point, but there's some potential to get back into the target. So, if anything, I think that the Reserve Bank is still in the position to further cut rates going into 2025.”

SOUTH AFRICA’S ECONOMIC CHALLENGES MAY INCREASE IN A NEW TRUMP ERA

“Our economic growth, however, also very much depends on how the global landscape might change with Donald Trump back in the White House. Implication for trade tariffs on all countries, including emerging markets, considering that we are a key member of the BRICS group, may see us facing some new challenges globally. To fix our own issues that are keeping South Africa from performing above capacity, is now more important than ever, to help shield us from some of the challenges that may lie ahead,” says Ackerman.

Ackerman highlights that while economic growth may not look positive in the short term, South Africa is still an attractive investment destination for long-term investors. “Investors with a longer-term view that are backing the government of national unity provide an upside from an investment point of view. We're still sitting with a high-interest rate environment and low inflation. From a real yield perspective, South Africa still remains an attractive place to invest,” he concludes.