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HomeBusinessEconomic growth in third quarter likely to remain subdued

Economic growth in third quarter likely to remain subdued

Economic growth in third quarter likely to remain subdued

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Economic growth in the third quarter is expected to remain subdued in South Africa, narrowly escaping a technical recession, in spite of business activity rebounding the most in 16 months.

The South African Reserve Bank (SARB) said yesterday that the composite leading business cycle indicator rose by 1.4% month-over-month in September, rebounding from a 2.3% fall in August.

This was the first increase in the leading business index in three months, and the most since May 2021, as five of the nine available component time series increased while the remaining four decreased.

The SARB said the largest positive contributors were an acceleration in the six-month smoothed growth rate of job advertisement space and an increase in the number of residential building plans approved.

The largest negative contributors were a deceleration in the six months smoothed growth rate of new passenger vehicle sales and slower year-on-year growth in the composite leading business cycle indicator for South Africa’s main trading partner countries.

In spite of this, economists expect growth in the third quarter to remain muted as the contraction in global growth and severe power cuts in the three months to September put a drag on activity.

The leading indicator reading for the third quarter fell by 2.0% quarter-on-quarter as the slowdown in global growth worsened, with September a bearish month in financial markets and commodity prices contracting.

The BankservAfrica Economic Transactions Index contracted by 4.9% in the third quarter in real terms, indicating severe downwards pressure on gross domestic product (GDP).

South Africa also saw the number of new passenger vehicle sales contracting, impacted by slowing export activity.

Investec chief economist Annabel Bishop said that overall, GDP growth was most likely to come out at 0.4% quarter-on-quarter in the third quarter.

This means that GDP will narrowly miss the technical recession after economic growth fell by 0.7% in the second quarter as the Russia/Ukraine war, power cuts, and the impact of floods in KwaZulu-Natal slashed two consecutive quarters of positive real GDP growth.

Bishop said that excluding the impact of the floods, the second quarter’s industrial production would have contracted by just more than 1%.

“This created a low base which the third quarter GDP will see some rebound from, although the lift is proving muted as the slowdown in the global economy in the third quarter provides a drag on activity, as do higher interest rates,” Bishop said.

“For South African economic growth is expected to slow materially next year, to 1.3% from 1.9% year-on-year in 2022, as global demand weakens, although it will be boosted year-on-year by low base in the second quarter caused by the flood damage.

“There remain downside risks to 2023’s forecast as high levels of uncertainty still prevails.”

BUSINESS REPORT

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