04

June 2024

Market News Macro Economic Insights

SA GDP growth contracts by 0.10% in the first quarter of 2024

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Adriaan Pask

Chief Investment Officer, PSG Wealth

Event
  • South Africa's economy contracted by 0.10% in the first quarter of 2024, compared to an upwardly
    revised growth of 0.30% in the previous quarter and below market expectations of a 0.10%
    expansion.
  • Six of the 10 industries tracked by Stats SA declined, with the construction sector contributing the most
    to the overall contraction by 3.10%.
  • On the expenditure side, data from Trading Economics showed that household consumption fell by
    0.30%, and changes in inventories contributed one percentage point. However, government spending fell by 0.30% and fixed investment shrank 1.80%. Net exports contributed negatively by 1pp, after decreases of 2.30% and 5.10% in exports and imports, respectively.
  • On an annualised basis, the economy expanded by 0.50% in 1Q24, following a 1.40% increase in
    the previous period and compared with market estimates of a 0.60% increase.
The Impact
  • The FTSE/JSE All Share Index (ALSI) fell by 0.97% in midday trade on Tuesday, mainly pressured by financiallinked sectors and industrials. At the same time, investors kept a close watch on a batch of economic data, including PMI surveys and US jobs data due later this week.
  • At 12h50 the rand weakened to R18.70/$, R20.33/€ and R23.85/£.
  • The South African 5-year and 10-year government bond yields rose to 9.53% and 10.84%, respectively.
  • The 30-year yields also rose by 13.18%.
The Assessment
  • With coalition talks in the spotlight, political uncertainty is expected to weigh on the South African economy and investor sentiment over the short term, but these risks are already priced into very depressed valuation levels in large portions of the local market. Our outlook for local equities, therefore, remains favourable.
  • We believe it is particularly important that advisers spend time engaging with clients about their long-term strategy and reiterating that our growth assumptions already take periods of market weakness and
    underperformance into account. While it can be difficult to resist the urge to make adjustments to portfolios in light of a challenged economic backdrop, clients are best served by focusing on their long-term plans.
  • We will continue to monitor any developments that pose a threat to the performance of our equity portfolios and make adjustments when warranted.