By FA News
It is one thing when your country’s GDP growth is slowing, and quite another when the veracity of that number comes under fire. This is the case following the Statistics SA announcement of a 0.3% weakening in real South African GDP for the third quarter of 2024, largely due to a 28.8% decline from the agriculture sector.
Your writer enjoyed how Neesa Moodley framed recent events in her coverage for Daily Maverick.
She wrote, “While economists were not expecting GDP figures to shoot the lights out this month, the fall in agriculture was something of a surprise.” The contraction was so pronounced that some are now questioning how the agriculture sector is being measured and reported on.
Journalists drew attention to work being done by the Bureau for Food and Agricultural Policy (BFAP), which has twice this year complained about the accuracy of agriculture-related data used by Statistics SA. And News24.com went further, reporting under a self-explanatory headline that screams: ‘SA’s economy shrank, or did it? Doubts over farm data quality.’
This GNU seems somewhat dysfunctional
It is heartbreaking that despite all the fanfare around the Government of National Unity (GNU) and Business for South Africa (B4SA) rolling up their proverbial sleeves to fix things, the economy has done little more than shuffle sideways.
The latest growth hiccup is relevant to financial and risk advisers because the state of the economy filters through to the businesses and households you advise. If the economy falters, then so do aggregate corporate and household incomes. And if aggregate incomes fall, then so does the amount of spare cash that your commercial and personal clients have to direct towards insurance and investment. Little wonder then, that the financial services businesses whose products you ‘rep’ are left pursuing acquisition and merger strategies to grow market share. But we digress.
Momentum Investments Group was quick in offering its analysis of the Q3 GDP number. “On the back of the large negative surprise in growth, we are more cautious about growth in the fourth quarter of 2024,” they wrote, before warning that full-year GDP growth was likely to come in at a mere 1% with the potential for a further downside surprise. While higher household consumption expenditure on the back of the two-pot withdrawals and the impact of the interest rate cut to 7.75% in November 2025 would support the economy, the large dip in agriculture is a concern.
A five-page growth assessment
The firm’s frank five-page assessment of the domestic economy highlighted the potential impact of the looming water crisis that afflicts many local municipalities, particularly in Gauteng. They warned that a crisis of this type would “have a bigger impact on growth indirectly” before considering how water shortages could play out in the province that makes the largest contribution to overall GDP growth.
“The impact [of the crisis on Gauteng] will likely be minimal because [the province’s dominant] sectors are not large users of water and, combined, made up 83.2% of economic activity in 2023,” said Sanisha Packirisamy, Chief Economist at Momentum Investments Group.
According to the Department of Water and Sanitation, agriculture is the largest total user of water, followed by households and then mining. Ironically, while water is more critical than electricity for our survival, ongoing disruptions to water supply appear to be less economically damaging than loadshedding was.
But that does not mean the crisis is risk-free. “A water crisis could diminish South Africa’s appeal as a tourist destination and burden the health system or reduce productivity if health issues come into play,” the economist said. The risk of civil commotion cannot be overlooked either.
Concern over ‘big picture’ climate trends
Outcomes are less clear in the agriculture sector, where farmers are at the mercy of extreme weather phenomena. “The production estimates from the Crop Estimates Committee (CEC) reveal that final summer crops for 2024 are down 25.2% year-on-year from 2023, largely due to the El Niño season,” Packirisamy said. CEC winter crop estimates for 2024-25 are also down 1.4% on the prior period.
For some additional context, El Niño is a climate phenomenon that occurs when ocean surface temperatures in the central and eastern Pacific Ocean near the equator become significantly warmer than average. For countries in Sub-Saharan Africa, the result is lower rainfall, drought and extreme temperatures. Farmers in South Africa will face lower rainfall during the rainy season and the consequent lower yields for rain-dependent crops. Your writer has already seen warnings that the Vaal dam will fall below 20% over the festive season.
Economic growth continued to disappoint despite no loadshedding for two consecutive quarters, going on three, and an electricity availability factor (EAF) improving to above 60%.
“While the benefit of no loadshedding is taking longer to transpire, we are not expecting the electricity supply to play a detracting role from economic activity in the near term,” Packirisamy said. This is good news that should hopefully weigh alongside improved sentiment, lower inflation, lower interest rates and growing momentum in structural reform to boost 2025 growth.
The positive impact of the savings pot
The two-pot retirement system, implemented from 1 September 2024, has also had a net positive impact on the domestic economy. According to Packirisamy, the estimated total withdrawal for this year may support consumer spending in the fourth quarter, provided that consumers allocate a meaningful portion of their withdrawals to consumption expenditure.
Figures provided by the SA Revenue Service (SARS) show that gross lump sum savings withdrawals from the two-pot system reached R35.1 billion by 19 November 2024. The South African Reserve Bank (SARB) has in turn raised its estimate of total withdrawals from R40 to R51 billion for 2024.
Returning to the GDP outlook, the International Monetary Fund (IMF) has reportedly given a lowball forecast of just 1.8% for SA GDP by the end of this decade. In its November 2024 assessment, the IMF noted that risks to the growth outlook were tilted to the downside and that global risks include “further deepening of geoeconomic fragmentation and intensification of protectionist policies; an escalation of ongoing conflicts; a deeper slowdown in key trading partners (such as China); or slower global disinflation which could lead to exchange-rate, commodity-price, and capital flow volatility [in turn] dampening confidence, exports and growth.”
