2Q24 GDP: a better outcome during the election quarter

As anticipated, the economy avoided a technical recession, expanding by 0.4% q/q, seasonally adjusted, in 2Q24. This follows an upward revision to the 1Q24 data, from a previously reported 0.1% contraction to a 0.0% reading. The outturn aligns with our expectations and consensus forecasts.

Year-on-year, GDP grew by 0.3% on a non-seasonally adjusted basis, resulting in a 0.4% expansion in the first half of 2024 compared to the first half of 2023. Nominal GDP increased by 5.3% y/y, up from 4.2% y/y in 1Q24, providing moderate support for government revenue growth. Compensation of employees rose by 4.9% y/y, still lagging the average inflation rate of 5.2% during the reference quarter.

Outlook

This GDP outcome does not alter our headline growth projections. We maintain our forecast of 1.0% real GDP growth for this year, with an expected increase to 1.8% in 2025 and 1.9% in 2026. These projections are supported by easing energy constraints, moderating inflation, the anticipated shift towards easier but still restrictive monetary policy, the introduction of the two-pot retirement system, and a stable global growth environment.

Zoning in on supply and demand components

Growth in 2Q24 GDP was broad-based with 7 out of 10 sectors recording positive readings, while the performance of GDP demand components was mixed with household and government spending rebounding while fixed investment and exports declined further. On the supply-side, growth in gross valued added was recorded in:

The finance, real estate and business services which increased by 1.3% q/q, reflecting an acceleration from 0.2% increase in 1Q24. This was largely driven by increased activity in financial intermediation, auxiliary activities, real estate activities and other business services.

The manufacturing sector increased by 1.1% q/q, rebounding from a 1.4% q/q contraction in 1Q24. Growth in this sector was primarily supported by increased activity in motor vehicles, parts and accessories, other transport equipment, basic iron and steel, non-ferrous metal products, metal products and machinery, food and beverages as well as petroleum, chemical products, rubber and plastic products divisions.

• Trade, catering and accommodation also recorded a 1.2% quarterly increase, faster than the 0.3% expansion recorded in 1Q24. This was largely supported by increased activity in retail and wholesale trade sales volumes and accommodation, meanwhile motor trade continued weakening.

• Electricity, water and gas expanded by 3.1%, rebounding from a 0.4% contraction. This was largely supported by increased electricity production (and consumption), underscoring Eskom’s improved energy availability factor and reduced unexpected breakdowns. There was also an increase in water consumption.

• The construction sector increased by 0.5%, rebounding from a prolonged four-quarter recession, supported by increased activity in residential and non-residential buildings.

• There were marginal increases in government services (0.5% q/q) and personal services sectors (0.2% q/q), supported by increased employment in national government, provincial government, and extra-budgetary institutions as well as economic activity in health and education.

The remaining sectors (agriculture, forestry and fishing; mining and quarrying; and transport, storage and communication) were a drag on GDP growth (Figure 1). Within the demand components, growth was largely supported by household consumption expenditure which increased by 1.4% q/q, following a 0.2% quarterly contraction in 1Q24 (Figure 2). Growth in household consumption was broad-based reflecting increases in durables (0.9% q/q), semi-durables (1.7% q/q), non-durables (0.7% q/q), and services (1.8% q/q). General government consumption increased by 1.0%, rebounding from 0.2% quarterly contraction, as government purchases of goods and services and compensation of employees increased. Inventories increased to R9.6 billion from R3.8 billion.

Fixed investment (gross fixed capital formation) contracted by 1.4% q/q, marking the fourth successive quarter of contraction. This reflected quarterly declines in machinery and other equipment, transport equipment and construction works. Private sector fixed investment declined by 0.9%, shallower than the 2.3% quarterly decline in 1Q24. General government and public corporation investment was weak at 0.3% and 0.2%, respectively. Net exports were also a drag on GDP growth, with exports contracting by 0.4% q/q, and imports increasing by 1.7% q/q.

Source: Stats SA, FNB Economics

*Thanda Sithole is FNB Senior Economist.