South African Economy grows 0.4% in Q2 Amid Improved Electricity Supply and Manufacturing Sector Rebound

• Sep 03, 2024

South Africa's economy experienced a notable expansion in the second quarter of 2024, driven by a rebound in the electricity and manufacturing sectors. According to a report by Statistics South Africa, the country's gross domestic product (GDP) grew by 0.4% in the three-month period ending in June, a significant improvement from the stagnant growth recorded in the previous quarter.

This economic upturn was largely unexpected, with only one out of 17 economists in a Bloomberg survey predicting such growth. The median forecast had been a 0.5% increase in GDP.

The economic rebound coincided with a reduction in the persistent rolling electricity outages, known locally as load shedding, which had been a major issue for the country. Eskom, the state-owned utility responsible for the majority of the nation's power, credited the improved electricity supply to the introduction of new generation units, a decline in unplanned outages, and an enhanced maintenance program. Eskom has also indicated that blackouts are unlikely to return over the coming summer months.

The electricity sector's output grew by 3.1%, while the manufacturing sector expanded by 1.1%, making them the primary contributors to the economy's growth. Additionally, the finance, real estate, and business services sectors saw a 1.3% increase during the quarter.

As inflation eased more than anticipated to 4.6% in July, approaching the midpoint of the South African Reserve Bank's (SARB) target range, the central bank is widely expected to begin reducing borrowing costs this month. This anticipated reduction in interest rates is likely to stimulate consumer spending, further supporting economic growth.

The gap between the SARB's policy benchmark rate and the annual inflation rate is currently at an 18-year high. At the July meeting of the bank's monetary policy committee, Governor Lesetja Kganyago noted an improvement in the inflation outlook. The SARB's next rate decision is scheduled for September 19.

This economic rebound is a welcome development for South Africa, which has been grappling with persistent challenges, such as high unemployment and sluggish growth. The improvement in the electricity supply and the anticipated reduction in interest rates are expected to bolster consumer confidence and drive further economic expansion in the coming quarters.