South Africa is on track to miss its 2024 economic growth target following a sharp contraction in the agricultural sector, which contributed to an unexpected decline in the third quarter. Data from Statistics South Africa revealed a 0.3% contraction in GDP for the quarter, resulting in only 0.4% growth in the first nine months of the year. This underwhelming performance casts doubt on the government’s 1.1% growth forecast.
The agricultural sector suffered a 28.8% drop in the third quarter, its deepest decline in over 30 years, largely due to drought conditions that slashed production of key crops like corn, soybeans, wheat, and sunflower in certain regions. This severe downturn in agriculture has prompted economists from Nedbank Group Ltd. and Goldman Sachs Group Inc. to revise their 2024 growth forecasts downward, projecting just 0.5% and 0.6% growth, respectively, down from their previous estimates of 1%.
FNB and Bloomberg Economics, which had forecasted a 1% and 1.1% growth for the year, are also expected to revise their estimates downward. However, these economists remain somewhat optimistic about a recovery in the fourth quarter, expecting the economy to strengthen further into 2025, supported by improving consumer confidence, lower inflation, and potential interest rate cuts.
South Africa’s annual inflation rate has remained below the South African Reserve Bank’s (SARB) preferred midpoint of 4.5% since August. This has led the central bank to reduce interest rates twice since September, with the current rate standing at 7.75%. The disappointing GDP figures have further fueled speculation that the SARB may deepen its rate-cutting cycle, with traders now expecting up to 73 basis points of rate cuts over the next year, compared to 69 basis points before the GDP data release.
Goldman Sachs economist Andrew Matheny noted that the GDP contraction could prompt more aggressive rate cuts at the upcoming Monetary Policy Committee meetings, with expectations of the terminal rate being set at 6.5%, lower than current market predictions.
