South Africans are still living through a recession – but there are signs of life
South Africa’s economy is showing growth but still failing to meet the nation’s growing population.
South Africa’s GDP saw 0.4% quarter-on-quarter growth in Q2 2024 – following flat growth in the year’s first quarter.
GDP has only increased by 0.3%, which borders on recessionary levels.
“This sluggish performance underscores the ongoing economic challenges that the country faces,” said Maarten Ackerman, Chief Economist at Citadel.
Moreover, the nation’s economy is growing far slower than the population growth rate of roughly 1.5%, meaning that the country is in a per-capita recession.
This reflects the lack of significant impact from ongoing economic reforms and suggests continued social pressure and high unemployment.
“The GDP figures don’t yet reflect the optimism we’ve seen in the financial markets since the Government of National Unity (GNU) took office,” said Ackerman.
“Strong returns on the Johannesburg Stock Exchange (JSE), bond market and a strengthening rand are more sentiment-driven, with market watchers hoping that the new government will address the structural barriers hindering economic growth.”
He added that recent data, such as vehicle sales and the latest ABSA Purchasing Manager’s Index (PMI), highlight fundamental South African economic weaknesses.
The manufacturing and services could mean the current market rally may not be sustainable without significant economic improvements.
There were positive signs from the GDP print, such as the contributions from electricity, gas, and water- which saw the best quarter-on-quarter improvement since 2020.
That said, a concerning trend in the continued decline in gross fixed capital formation, which reflects the business sector’s level of willingness to invest in assets that boost the economy, showcasing the need for broader investment beyond the solar boom.
“The current GDP numbers reflect the ongoing structural challenges that have long hindered South Africa’s economic progress. Despite some positive developments, such as the emergence of the GNU and optimistic market sentiment, the economy remains constrained,” said Ackerman.
“Significant work is still required to address these structural challenges and achieve sustainable economic growth above 2.5%. Without this and the current optimism surrounding the GNU, South African asset classes could face substantial risks.”
Signs of opportunity
That said, Ackerman noted that GDP and unemployment figures can often paint a picture of stagnation and limited economic growth, but these overlook the thriving informal economy.
The informal economy is flourishing, with many JSE-listed and international companies recognising its potential.
“If we look at the publicly available economic data like unemployment and GDP and we contrast it with some of the success stories in the informal economy from the likes of Shoprite and Capitec – it is clear that something is happening that we are not capturing,” said Ackerman.
“There’s an economic revolution happening,” added GG Alcock, an expert on the informal economy.
“When you consider that Parmalat does R3 billion in sales in the South African township market, R90 billion changes hands across 50,000 fast food outlets and R20 billion is earned through backroom rentals annually, you understand that significant markets are developing here,” added Alcock.
Several JSE-listed companies, such as retailers and banks, have said that the informal economy is a key part of their future strategies.
“While we cannot deny that South African economic data has not been particularly encouraging over the last decade, it is also clear that there are unmeasured parts of the economy that are thriving,” said Ackerman.
“Forward-thinking entrepreneurs, from those running JSE-listed businesses through to those operating in the informal economy, are seeing opportunities and building real wealth.”
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