South Africa's Economy Shrinks by 0.1% in Q1 2024, Defying Market Expectations

South Africa's economy contracted by 0.1% in the first quarter of 2024, according to data released by Statistics South Africa (Stats SA). This decline was worse than market predictions, which had anticipated a modest growth of 0.1%. The contraction follows a 0.3% expansion in the final quarter of 2023, narrowly avoiding a recession.

Several key sectors contributed to the downturn. The manufacturing industry saw a significant decline of 1.4%, with the motor vehicles, parts, and accessories, and other transport equipment division making the largest negative contributions. The mining industry also reported a decrease of 2.3%, driven by lower production and sales of platinum group metals, coal, gold, and manganese ore.

The construction sector experienced a 3.1% drop, attributed to reduced demand for residential construction projects. On the expenditure side, household final consumption expenditure decreased by 0.3%, reflecting a bleak backdrop for consumer spending.

Why this matters: South Africa's economic contraction has broader implications for the country's political stability and global economic trends. A potential recession could lead to increased unemployment, reduced investor confidence, and a decline in living standards for South Africans.

Despite the overall contraction, the agriculture sector recorded significant growth, with a 13.5% increase in output, driven primarily by a buoyant horticulture sector. This sector's performance was a rare positive note in an otherwise challenging economic environment.

Economists have expressed concerns about the country's economic outlook. Razia Khan, chief Africa economist at Standard Chartered Bank, described the GDP data as *"weak, weak, weak. * Jee-A van der Linde, a senior economist at Oxford Economics Africa, noted that the unexpected election results have increased uncertainty, stating, *"A business-friendly coalition outcome would improve confidence and should facilitate fresh investment that could give the economy legs to run from the second half of 2024."*

The contraction in South Africa's economy comes amidst a backdrop of political uncertainty following recent elections. The African National Congress (ANC) lost its majority for the first time in 30 years, winning only 40% of preferences, down from 57.5% in 2019. The ANC is currently in talks with other groups to secure enough parliamentary support to form a government and elect a president.

Looking ahead, the South African central bank expects GDP growth of 1.2% for the year, with a predicted improvement in the second quarter. Annabel Bishop, Investec chief economist, expects a rebound to growth in the second quarter, citing the suspension of load shedding and improved data.

South Africa's economic performance will be closely watched in the coming months, especially during the country's political changes and its efforts to address structural challenges. The recent quarterly contraction opens the door for a possible economic recession in the second quarter of 2024.

Key Takeaways

• South Africa's economy contracted by 0.1% in Q1 2024, worse than market predictions.
• Manufacturing, mining, and construction sectors contributed to the downturn.
• Agriculture sector recorded 13.5% growth, driven by horticulture.
• Economists express concerns over economic outlook, citing political uncertainty.
• Central bank expects 1.2% GDP growth for 2024, with improvement in Q2.