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PPS Investments: GDP Q3 commentary

05 December 2023 Reza Hendrickse, Portfolio Manager at PPS Investments

As expected, South Africa’s economy contracted slightly during the third quarter of this year, shrinking 0.2% in real terms (seasonally adjusted). Although year-on-year growth to the end of September is negative (-0.7%), the economy has grown marginally year-to-date compared to the first three quarters of last year.

The primary and secondary sectors both contracted, while services experienced modest growth. Both mining and agricultural output declined, weighing on the primary sector. The secondary sector was affected by weaker manufacturing output (particularly food, beverages, and tobacco), and construction works.

Constrained SA growth

The growth environment in SA remains constrained, as recent PMI data has shown. Although growth continues to be unimpressive, it is worth pointing out that growth has managed to exceed expectations in most quarters during recent years. We even managed to deliver muted growth despite 2023 being the worst loadshedding year on record and despite numerous other challenges.

Looking ahead

Going forward, economic growth is expected to accelerate next year from this year’s low base. This is largely a function of loadshedding easing somewhat as the power crisis comes under control. On the consumer side, lower inflation is also positive, while any rate cuts from the SARB should also support spending growth. Any softness in global growth next year, however, may put a dampener on temporary respite in SA.

How are our portfolios positioned?

Our portfolio positioning currently reflects the risks to the South African economic outlook by being conservatively positioned in growth assets. Valuations are attractive on some metrics, however on a relative basis, and given where interest rates are, the opportunity cost of being somewhat defensively positioned for now is low.

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