South Africa's Q1 Growth Disappoints, But Inflation, Current Account Deficit Offer Silver Linings

In its latest report, EasyAssetManagement reveals that South Africa's economy contracted by 0.1% in the first quarter of 2024, largely due to reduced spending by consumers and businesses. Despite this setback, the nation's trade balance showed improvement, and the Johannesburg Stock Exchange experienced a week of mixed results, ending with modest gains but suffering a decline on the final day amidst both local and global uncertainties.

In a recent report, the economy contracted at a rate of 0.1% on a quarterly basis (0.3% annualized) in the first quarter of 2024. This fell short of analyst expectations of a 0.1% increase, due to weaker domestic demand. There was a positive revision to the growth rate for the fourth quarter (upward adjustment of 0.1% to 0.3% quarterly), but this was not enough to offset the negative surprise in the first quarter. Weaker performance in the agriculture sector and disappointing spending figures contributed to the decline.
Despite the contraction, the report supports the market view that inflation, particularly core inflation, is likely to remain under control in the near future.

This reinforces expectations of monetary policy easing by the third quarter of this year, barring any unforeseen negative global developments. The moderate GDP forecast for 2024 was also revised down slightly to 0.9% year-on-year due to the lower-than-anticipated growth in the first quarter. The report still anticipates a 0.6% increase in GDP for the second quarter (2.5% annualized), supported by expectations of a rebound in industrial production due to a stable power supply.



 
Revising ‘24 Current Account Deficit up to 2.0% of GDP
The current account deficit (CAD) for the first quarter of 2024 (1Q24) came in lower than expected at 1.2% of GDP, exceeding analyst forecasts of 1.6%. This improvement reflects a significant narrowing from the 2.3% deficit recorded in the fourth quarter of 2023 (4Q). The positive trend is primarily driven by a wider trade surplus, which expanded to 2.6% of GDP in Q1 compared to 1.5% in the previous quarter. Favourable terms of trade played a key role in this development. Additionally, import volumes contracted by 5.1% compared to the previous quarter, while export volumes experienced a more moderate decline of 2.3%.

However, the deficit on invisible balances (income, transfers, and services) widened to 3.7% in Q1, offsetting some of the gains from the trade surplus and contributing to the slight miss on analyst projections. This expansion is likely due to a larger primary income deficit, possibly caused by increased dividend outflows (up to 2.2% of GDP from 1.8%).

Looking ahead, market forecasts anticipate a continued trade surplus in the second quarter (2Q), albeit at a smaller scale of 1.5% of GDP. This projection remains higher than previous estimates of 0.6%, supported by continued strength in commodity prices. Additionally, stable power supply is expected to bolster mining activity in Q2.

The overall forecast for the external balance remains uncertain due to a potential rise in imports. This is because vehicle shipments, which significantly contributed to the import contraction in Q1, have shown signs of recovery since April.



JSE Ends Week Up Slightly
 South Africa's Johannesburg Stock Exchange (JSE) closed the week with a slight gain of approximately 0.2%. However, Friday's trading session witnessed a reversal of this positive momentum, with the JSE index falling roughly 0.4% to close at 76,852. This decline was attributed to a combination of factors.







On the global front, investors reacted cautiously to a stronger-than-anticipated US jobs report. This data point has the potential to influence future interest rate decisions by the US Federal Reserve, which could in turn impact global markets.

Adding to the Friday jitters were ongoing uncertainties surrounding the political landscape in South Africa. These domestic concerns weighed on investor sentiment, leading to a more cautious approach in the market.

Sector-wise performance reflected this cautiousness. Stocks linked to resource extraction and telecommunication companies were among the day's biggest losers. Conversely, the retail sector saw a positive outlier. Retailer TFG defied the downward trend, surging over 11% after announcing a significant increase (33.3%) in its final dividend for the year.

Want to know more about the latest news?

CrowdStrike’s Rise and its $5 Billion Revenue Goal

What Nvidia's 10-for-1 Stock Split Means for You

What Could Impact NVIDIA's Stock Price?

Gaming ETFs: Big CEOs Are Interested in This Space, Are You?

Is It Too Late to Invest in Tech With This ETF?

Any opinions, news, research, reports, analyses, prices, or other information contained within this research is provided by an external contributor as general market commentary and does not constitute investment advice for the purposes of the Financial Advisory and Intermediary Services Act, 2002. First World Trader (Pty) Ltd t/a EasyEquities (“EasyEquities”) does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information (i) contained within this research and (ii) received from third party data providers. You must rely solely upon your own judgment in all aspects of your investment and/or trading decisions and all investments and/or trades are made at your own risk. EasyEquities (including any of their employees) will not accept any liability for any direct or indirect loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on the market commentary. The content contained within is subject to change at any time without notice.