The sharp contractions in value added by agriculture, mining, manufacturing, and construction were mainly responsible for the poor GDP outcome. Picture: Shelley Kjonstad/ Independent Newspapers
The drop in the country’s Gross Domestic product (GDP) figures were impacted by contractions in value added by agriculture, mining, manufacturing, and construction, according to an analysis statement by Nedbank.
Additionally, Adriaan Pask, CIO at PSG Wealth said the decline in GDP was mainly attributed to persistent load shedding, logistical constraints, as well as the challenging global environment.
On Tuesday StatsSA noted that country’s GDP decreased by 0.2% in the third quarter of 2023. But it should be noted that for the year to date, the economy has expanded by 0.3%.
Real GDP was marginally weaker than expected in Quarter 3, shrinking by 0.2% (Quarter on Quarter) qoq from downwardly revised growth of 0.5% in Quarter 2.
“In contrast, positive contributions came from 'transport, storage and communication', 'finance, real estate and business services', general government and personal services,” Nedbank noted in the analysis statement.
StatsSA noted that in terms of SA’s expenditure, expenditure on GDP contracted by 0.1% qoq in Quarter 3, following a 0.7% growth in Quarter 2.
Nedbank notes that a collapse in gross domestic expenditure caused the decline, while the drag from the negative export position moderated as imports imploded and exports edged slightly higher.
“The breakdown of gross domestic expenditure shows that only government consumption expenditure increased over the quarter, while household consumption expenditure, gross fixed capital formation, and inventories contracted sharply.”
The outlook for the rest of the year and even the new year does not look great, according to the bank and argues that load shedding will not help matters.
“Load shedding has returned with a vengeance as Eskom resumed regular maintenance and emergency reserves dwindled. Logistical constraints have also intensified. Both will continue to amplify operating costs, erode profits, and weigh down activity.”
Pask said that protracted load shedding and political uncertainty are expected to continue to weigh on SA’s economy and investor sentiment, but these risks are already priced into very depressed valuation levels in large portions of the local market.
Pask and the PSG Wealth team note that the outlook for local equities, remains favourable. He believes it is particularly important that wealth advisers spend time engaging with clients about their long-term strategy and reiterating that growth assumptions already take periods of market weakness and underperformance into account.
He stresses that while it can be difficult to resist the urge to make adjustments to portfolios in light of a challenged economic backdrop, clients are best served by focusing on their long-term plans.
On the international front, Nedbank states that advanced countries are battling the most aggressive monetary policy tightening in decades with varying degrees of resilience.
“China's fading economic recovery clouds the outlook for emerging markets. As a result, global demand is slowing, keeping international commodity prices subdued. These challenges will likely hurt domestic exports, sustaining the pressure on the country's external position,” the bank explains.
Higher interests rates will also hurt the consumer and households which will intern impact purchasing power.
This will, therefore, impact companies’ ability and willingness to expand their businesses and operations, impacting the long-term growth of the country.
“We forecast GDP growth of around 0.5% in 2023 and 1.1% in 2024, with continued downside risks,” Nedbank concluded.
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