The second quarter of 2024 was a difficult time, filled with uncertainty only amplified by pre-election “wait-and-see” attitudes. The quarter’s GDP number is telling a similar story. The economy grew by a marginal 0.4%, only a slight improvement from the stagnation experienced in the first quarter that saw 0% growth.
The outlook is more robust. While Standard Bank’s forecast for GDP for 2024 is an encouraging 1.1% — considering the year-to-date GDP growth to June 2024 at 0.4% year-on-year — a lot will depend on what happens in the second half to get us past that 1% mark.
Focusing on the household sector in particular, which drives a good 60% of overall GDP in South Africa, it is worth unpacking final household consumption expenditure. Despite the tough economic climate, consumption grew by 1.4% in the quarter, contributing 0.9% to total GDP growth in the quarter. This is the strongest growth over the past 10 quarters and higher than the last peak of 1.2% in Q1 2022.
What are consumers spending most of their money on? On aggregate, Stats SA data reveals that more money was spent on transportation, while housing and utilities and then food and non-alcoholic beverages were par in second place.
There is nothing new about this top three, aside from expenditure on food having now caught up with expenditure on housing and utilities for second place. Although food demand has somewhat accelerated, the contributing factor to the change seems to be the flattening spend in housing and utilities since 2020. It may be that housing is where consumers have found ways to minimise and even reduce expenditure in order to afford other priorities. The component was the only household expenditure item that recorded a decline in the quarter, albeit marginal at -0.2%
While the top three expenditure categories have not changed, it is interesting to note those that grew the fastest. Miscellaneous goods and services were up 4.5% in Q2, a green shoot after a long downward trend from the last peak of Q4 2021. Coincidentally, online Chinese retailer Temu launched in January 2024 in South Africa, joining Shein and Takealot in online sales of a variety of items.
Clothing and footwear grew by 3.2%, followed by recreation, up 1.8%. While interest rates remain high, consumers seem to be staying clear of large-ticket items and opting to enjoy more affordable pleasures like clothing and outings. Still, expenditure on durable goods managed some growth (0.9%).
Although consumer confidence remains low, there are a number of factors that are promising to set confidence on a recovery path and drive stronger consumption expenditure in the second half of 2024.
In delicate diplomacy, the government of national unity is making progressive steps towards fiscal stability. With that in mind, the hope is that a lot of the existing economic inefficiencies will finally get the right attention
First is the anticipation of the beginning of the interest rate downward cycle. The market is expecting the first rate cut in September, which will ease household balance sheets as we approach the festive season. Pent-up demand for certain durable goods may start to gain some attention. However, there is a note of caution: interest rates are not likely to come down as fast or as significantly as we saw during the Covid-19 period, bringing more marginal relief than significant stimulus to the household sector. Hence, improvement in durable goods sales is likely to be modest while we will probably continue to see a struggling housing market.
Second is the introduction of the two-pot system. Within the first day of its launch, Sars said it collected R6.7m in tax revenues, a small indication of the cash injection going into the economy. With time and analysis from the pension funds industry, we will have a better view on how withdrawals are being spent and draw better conclusions on which subcategories of household consumption are most affected.
Lastly, inflation has eased over much of 2024 and some strengthening in the local currency will see lower prices on imported goods while also mitigating the impact of fuel prices on transportation.
It is worth noting that while the BER’s Q3 2024 Business Confidence Index remained below the 50-point mark, indicating a positive outlook, the wholesale and retail components were the highest at 51 and 45 respectively, providing a supply-side perspective of the consumer outlook: cautious yes, but also optimistic.
Outside of the household sector, another great boost to GDP may come from government expenditure and investment. In delicate diplomacy, the government of national unity is making progressive steps towards fiscal stability. With that in mind, the hope is that a lot of the existing economic inefficiencies will finally get the right attention. That could provide the much-needed boost to business activity, particularly with regard to infrastructure backlogs and maintenance; water and logistics now taking centre-stage with the improvement in energy supply.
• Makhoba is an economist and the lead specialist in research and analytics at Liberty, the insurance and asset management arm of Standard Bank
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.