Amid all the financial market euphoria since the government of national unity (GNU) was formed in July, the latest official data on the real economy is a sobering reminder of SA’s challenges.
The economy grew by just 0.4% in the second quarter of 2024, lower than the consensus forecast of 0.5%. Comparing this year’s first half with 2023’s also shows an increase of just 0.4%. On the upside, seven of the economy’s 10 sectors showed growth, and consumption spending rebounded quite strongly. On the downside, fixed investment declined for a fourth consecutive quarter. Net exports were down too. And agriculture and mining contracted, as did transport.
It all seems very disappointing given that this was the quarter in which load-shedding was finally halted, and reforms seemed to take off in other areas too. But pre-election uncertainty would have weighed on confidence and activity for much of the quarter. And after the first quarter, which was flat, the second quarter’s modest pickup may prove to have been an inflection point, the start of an improving trend for an economy whose growth has fallen well behind population growth over the past four years.
Nor is that 0.4% number that modest. Stats SA no longer annualises the quarterly GDP data as it used to do. But if we assume that 0.4% is sustained for the rest of the year, the economy should easily make the 1%-plus growth rate that most economists forecast. Since the economy flirted with recession in last year’s second half, it shouldn’t be too hard for it to show stronger growth in this year’s second half. It will be boosted too by the “sugar rush” of two-pot payouts as well as lower inflation and interest rates and, hopefully, improving confidence — especially if we assume the lights will stay on.
The confidence numbers are the ones to watch, because they are the leading indicator, as economists say, of whether the upward trend will not only be sustained but will accelerate. In that sense, Wednesday’s RMB/BER third-quarter business confidence index was modestly good news, and hopefully supports the idea of an inflection point for the economy. But there is still a long way to go.
This was the first business confidence survey since the GNU was formed in July. The index was up for the second consecutive quarter, but by just three points to 38. That’s still way below the 50 level, which is regarded as neutral, and even further below the level where a majority of business people are confident that business conditions will get better.
Business confidence is closely correlated with future investment plans and projects, which is why the index matters a great deal for prospects of sustained economic growth.
The details of the survey do show some good signs: for the first time, a majority of those surveyed expect better business conditions in the next quarter. But the bottom line, from the GDP figures and from the business confidence data, is that the pickup needs to be sustained.
The signs are promising. The election of the GNU itself has boosted confidence and installed a government that is more committed to fast-tracking the growth-enhancing economic reforms that the government had already embarked on. With electricity and logistics improving, most see growth lifting to 1.5%-2% in 2025.
If confidence can be revived, investment and growth will follow. The new government must stay on course to fast-track implementing the reforms that will revive it.
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