South African economy expands 0.4% q/q in Q2

South Africa's economy expanded by 0.4% in the second quarter of 2024, falling slightly short of the market's expectations. The latest data from the national stats agency revealed that GDP grew at a slower pace than anticipated, with economists originally forecasting a 0.5% quarter-on-quarter growth. Annabel Bishop, Chief Economist at Investec, shared insights on the factors behind the lower-than-expected growth figures and discussed where the growth came from in the second quarter. Bishop explained that while the growth rate of 0.4% is not drastically different from the forecasted 0.5%, the revision of the first quarter's contraction from 0.1% to 0% played a role in the perceived discrepancy. She highlighted that the financial sector, including real estate and related services, contributed significantly to the positive growth in the business sector. Additionally, manufacturing showed promising growth, while the negative impact of Transnet's performance and notable detraction in the transport sector were observed. The positive contribution of stable power supply throughout the second quarter was emphasized by Bishop. She noted the significance of sufficient electricity availability in driving economic growth, which played a pivotal role in the 0.4% expansion seen in the latest data release. Looking ahead to the third and fourth quarters, Bishop expressed optimism regarding the continuation of growth momentum, citing expectations of around 0.5% growth in each subsequent quarter. Addressing the potential impact of interest rate cuts on the economy, Bishop suggested that South Africa could see two 25-basis point cuts in the near future, positioning the country favorably compared to the United States. The anticipated decline in inflation, coupled with lower interest rates, is expected to alleviate financial pressures on households, potentially leading to increased consumer spending. Bishop also discussed the implications of the two-part retirement system withdrawals on the economy, estimating a potential addition of approximately 0.2 percentage points to GDP. However, she cautioned that the nominal value of the withdrawals might not fully translate into real GDP growth due to inflation adjustments. Nevertheless, the easing of cost of living pressures and the availability of retirement funds could provide a boost to economic activity. On the exchange rate front, Bishop forecasted a stronger trend for the Rand, anticipating movements towards the 17.60 to 17.50 range against the US dollar. Despite the volatility in global markets and domestic economic factors, she predicted that the Rand could potentially strengthen further in the coming year, aiming to breach the 17 Rand to the US dollar threshold. In conclusion, Bishop indicated that while the recent GDP figures reflected moderate growth and fell slightly below expectations, they were unlikely to deter the upcoming interest rate cut. With various factors, including inflation trends, interest rate adjustments, and global economic conditions, influencing the Reserve Bank's policy decisions, the outlook for South Africa's economy remains cautiously optimistic.