South Africa’s Q1’24 GDP contracts 0.1%

South Africa's economy has faced challenges in the first quarter of 2024, with a contraction of 0.1% against the backdrop of mild growth expectations. Siobhan Redford, an Economist at RMB, highlighted the impact of high interest rates on the economy. While inflation has been on a downward trend, food inflation and fuel prices have posed challenges. Fixed investment fell significantly, with businesses adopting a wait-and-see approach before the recent elections, causing a pre-election slowdown. The recent contraction is reflected in various sectors, such as manufacturing, showing the impact of uncertainty on business decisions. The rise of the MK party in the elections has introduced a level of unpredictability, leading to cautious optimism among investors and businesses. The uncertainty surrounding the coalition government and policy decisions has further clouded the economic outlook. Despite these challenges, the economy has shown some resilience, with the Rand remaining stable amidst the political shifts. The upcoming weeks are expected to bring more clarity as the new government takes shape and its policies unfold. The second quarter is anticipated to see improvements in sectors like manufacturing and retail, driven by stable power supply and improved port access. While interest rate cuts are projected to provide some relief to consumers and businesses, structural constraints remain a hindrance to sustainable growth. Addressing issues such as electricity supply, infrastructure, and water management will be crucial to bolstering long-term growth prospects. Overall, the economic outlook remains cautiously optimistic, with the need for continued reforms and investment to drive sustained recovery.