The turnaround in the real GVA by the primary sector in the second quarter of 2023 reflected a further expansion in mining output and a substantial increase in agricultural output. The increase in agricultural output was primarily driven by the higher production of field crops and horticultural products. Mining production was supported by increases in the production of platinum group metals (PGMs), gold, coal, other metallic minerals and nickel, while the production of manganese ore, diamonds and iron ore decreased in the second quarter.
The real output of the secondary sector increased at a faster pace in the second quarter of 2023, underpinned by an acceleration in the pace of increase in the real GVA by the manufacturing sector. The increase in manufacturing production was broad-based, with higher production volumes in 9 of the 10 subsectors. Despite two consecutive quarterly expansions, the average level of real manufacturing output in the first half of 2023 remained essentially unchanged compared with the corresponding period of 2022. The real GVA by the sector supplying electricity, gas and water contracted for a fifth successive quarter in the second quarter of 2023, with the average level of real output in this sector 6.5% below that in the corresponding period of 2022. The decline in both electricity production and consumption continued to reflect electricity load-shedding and challenges with infrastructure as well as lower electricity demand by both businesses and private households following investments in alternative electricity generation capabilities. Following three quarters of expansion, the real GVA by the construction sector decreased in the second quarter of 2023, reflecting reduced residential and non-residential building activity, while civil construction activity increased.
The real output of the tertiary sector increased further in the second quarter of 2023 but at a much slower pace. The real output of the commerce sector contracted in the second quarter as real retail and wholesale trade activity decreased, while activity in the motor trade, catering and accommodation services subsectors increased. After expanding for six consecutive quarters, the real GVA by the transport, storage and communication services sector contracted in the second quarter, largely due to a decline in land transportation and transport support services, which were affected by truck torching incidents. By contrast, passenger journeys by rail increased from a very low base. The real GVA by the finance, insurance, real estate and business services sector increased at a slightly faster pace in the second quarter, boosted by increased activity in the financial intermediation and real estate subsectors.
Growth in real gross domestic expenditure (GDE) accelerated from 0.6% in the first quarter of 2023 to 1.3% in the second quarter. Both real gross fixed capital formation and final consumption expenditure by general government expanded alongside a significant accumulation of real inventory holdings. By contrast, real final consumption expenditure by households contracted in the second quarter of 2023. Real gross fixed capital formation and the increase in real inventory holdings each contributed 0.6 percentage points to growth in real GDP in the second quarter, while real net exports and final consumption expenditure by households deducted 0.8 and 0.2 percentage points respectively.
Real final consumption expenditure by households contracted in the second quarter of 2023 along with a further deterioration in consumer confidence and a decline in the real disposable income of households, which was affected by higher interest rates. The decrease was broad-based as real spending on durable goods contracted further and real outlays on semi-durable and non-durable goods reverted to contractions from expansions in the previous quarter. By contrast, real spending on services increased in the second quarter.
Household debt to disposable income edged higher to 62.5% in the second quarter of 2023 as the pace of increase in the seasonally adjusted level of debt marginally outpaced growth in nominal disposable income. The further increase in households’ cost of servicing debt relative to their nominal disposable income from 8.4% in the first quarter of 2023 to 8.8% in the second quarter reflected both the higher stock of outstanding debt and the cumulative 475 basis point increase in the prime lending rate since November 2021. Households’ net wealth increased slightly further in the second quarter as the increase in the market value of total assets outweighed that in total liabilities.
Real gross fixed capital formation increased further and at a faster pace in the second quarter of 2023 as capital spending by the private sector increased significantly. By contrast, capital investment by the public sector decreased slightly in the second quarter as lower fixed investment by general government marginally outweighed the increased capital investment by public corporations. Measured by asset type, real gross fixed capital outlays on machinery and other equipment as well as on construction works increased markedly in the second quarter, while capital expenditure on all the other asset classes decreased. Despite the further increase, the level of real gross fixed capital expenditure in the second quarter of 2023 was still 3.4% below the average level in 2019.
Total household-surveyed employment increased by a further 154 000 (1.0%) in the second quarter of 2023, marginally surpassing its pre-COVID-19 level following a sustained increase since the fourth quarter of 2021. Employment increased in the formal, agricultural and private household sectors in the second quarter of 2023, with employment contracts of a limited duration increasing the most, but decreased in the informal sector.
The number of unemployed South Africans decreased slightly in the second quarter of 2023 and, together with the increase in employment, resulted in a decline in the official unemployment rate to 32.6%, from 32.9% in the first quarter. The not economically active population remained broadly unchanged from the first to the second quarter of 2023 as the continued decrease in the number of discouraged work seekers was almost matched by the increase in other not economically active persons. Both the labour force participation rate and the labour absorption rate increased in the second quarter of 2023.
Year-on-year growth in formal non-agricultural nominal remuneration per worker accelerated further from 5.3% in the fourth quarter of 2022 to 6.4% in the first quarter of 2023, with nominal remuneration growth per worker quickening in the public sector while slowing marginally in the private sector. The average wage settlement rate in collective bargaining agreements increased to 6.4% in the first half of 2023, from 6.1% in the corresponding period of 2022 and an overall annual average of 6.0% for 2022.
Growth in labour productivity in the formal non-agricultural sector of the economy slowed further to 1.2% in the first quarter of 2023 as year-on-year output growth moderated at a faster pace than that in employment. Growth in nominal unit labour cost in the formal non-agricultural sector quickened to 5.1% in the first quarter of 2023 as year-on-year growth in total remuneration accelerated, while that in output slowed. However, growth in economy-wide nominal unit labour cost slowed to 3.3% in the second quarter of 2023 as year-on-year output growth increased at a faster pace than that in the compensation of employees.
Similar to global price pressures, domestic inflationary pressures have eased at both the producer and consumer levels thus far in 2023. In June 2023, domestic headline consumer price inflation returned to the inflation target range of 3–6% for the first time since May 2022, and then moderated further to 4.8% in August. The moderating trend was largely due to notable disinflation in consumer food prices to 8.2% and deflation of 11.7% in domestic fuel prices in August 2023. Underlying inflationary pressures also eased somewhat in recent months as core inflation decelerated from 5.3% in April 2023 to 4.8% in August.
South Africa’s trade surplus with the rest of the world decreased from R111 billion in the first quarter of 2023 to R31.1 billion in the second quarter as the value of merchandise and net gold exports decreased, while the value of merchandise imports increased further to a new all-time high. South Africa’s terms of trade deteriorated somewhat in the second quarter of 2023 as the rand price of imported goods and services increased while that of exports decreased.
The value of merchandise exports increased by only 0.4% in the second quarter of 2023 as increases in manufacturing and agricultural exports were partly offset by a decrease in mining exports. Manufacturing exports were boosted by exports of prepared foodstuffs, beverages and tobacco; machinery and electrical equipment; as well as vehicles and transport equipment. The lower value of mining exports resulted largely from reduced exports of pearls, precious metals and stones as well as mineral products, with the latter reflecting a decrease in coal and manganese exports. The value of mining exports was impacted by the further decline in international commodity prices as the United States (US) dollar price of a basket of domestically produced non-gold export commodities decreased for a fourth consecutive quarter in the second quarter of 2023.
The value of merchandise imports increased further by 3.1% in the second quarter of 2023 as both manufacturing and agricultural imports increased. The higher value of manufacturing imports continued to reflect strong demand for machinery and electrical equipment, in particular energy-related products such as electric accumulators, photovoltaic cells and static converters, as well as for rubber and articles thereof, and optical and professional equipment. The value of mining imports decreased in the second quarter of 2023, along with a notable decrease in mineral products as the value of both imported crude oil and refined petroleum products declined.
The shortfall on the services, income and current transfer account increased to R192 billion (2.8% of GDP) in the second quarter of 2023 from R174 billion (2.6% of GDP) in the first quarter as the deficits on the services and secondary income accounts widened, along with a smaller deficit on the primary income account. Together with the smaller trade surplus, this resulted in a widening of the deficit on the current account of the balance of payments from R63.7 billion (0.9% of GDP) in the first quarter of 2023 to R161 billion (2.3% of GDP) in the second quarter – the largest deficit since the third quarter of 2019.
The net inflow of capital on South Africa’s financial account of the balance of payments (excluding unrecorded transactions) decreased to R2.3 billion in the second quarter of 2023 following an inflow of R47.7 billion in the first quarter. On a net basis, portfolio investment, other investment and reserve assets recorded outflows, while direct investment and financial derivatives registered inflows.
South Africa’s total external debt decreased from US$164.3 billion at the end of December 2022 to US$162.2 billion at the end of March 2023. However, expressed in rand terms, South Africa’s total external debt increased from R2 790 billion to R2 889 billion over the same period as the exchange value of the rand depreciated against the US dollar.
South Africa’s positive net international investment position (IIP) increased from R1 209 billion at the end of December 2022 to R1 699 billion at the end of March 2023 as foreign assets increased more than foreign liabilities. The value of foreign assets was boosted by an increase in both domestic and foreign share market indices in the first quarter of 2023, while the exchange value of the rand had a larger impact on foreign assets than foreign liabilities as the nominal effective exchange rate (NEER) of the rand decreased, on balance, by 5.3% in first quarter of the year.
The NEER decreased further by 4.3% in the second quarter of 2023 as the exchange value of the rand depreciated in April and May before appreciating in June. During most of the second quarter, the exchange value of the rand was weighed down by the effect of severe electricity load-shedding on the domestic economic growth outlook, uncertainty about possible capital outflows amid South Africa’s stance on the Russia–Ukraine war, and expectations of further interest rate increases in the advanced economies. The exchange value of the rand displayed significant volatility in July and August 2023 as it mostly reflected changes in global risk appetite towards emerging markets. Although the rand was one of the strongest-performing emerging market currencies in July 2023, these gains were reversed again in August.
The yield on 10-year South African government bonds decreased from a recent high of 12.06% at the end of May 2023 to 11.10% on 28 July. The decline reflected a moderation in domestic consumer price inflation, an appreciation in the exchange value of the rand as well as the affirmation of South Africa’s long-term local and foreign currency debt ratings with a stable outlook by an international rating agency. The yield then increased to 11.66% in mid-September as the exchange value of the rand depreciated and international bond yields increased following market reactions to the downgrading of the US’s long-term foreign currency issuer default rating.
The total nominal value of outstanding rand-denominated listed and unlisted debt securities issued by residents and non-residents in the domestic primary debt market increased by 9.7% year on year to R6.1 trillion at the end of July 2023. The net issuance of debt securities by general government of R190 billion in the first seven months of the year was 0.8% more than in the corresponding period of 2022 and accounted for 65.3% of total net issuance in the domestic primary debt market. By contrast, net issuance in the domestic primary debt market by resident financial and non-financial corporations decreased somewhat over the same period, reflecting a change from net issuance to net redemptions by non-financial corporations and a decline in net issuance by financial corporations.
Growth in the broadly defined money supply (M3) accelerated further to a post-COVID-19 high of 11.2% in June 2023 before moderating to 9.3% in July. The strong growth in M3 largely reflected an acceleration in the deposit growth of financial companies and, to a lesser extent, households. By contrast, growth in the deposit holdings of non-financial companies moderated somewhat in the first seven months of the year. Growth in long-term deposits and in short- and medium-term deposits outpaced that in the more liquid cash, current account and other demand deposits over this period.
Year-on-year growth in total loans and advances extended to the domestic private sector moderated from a recent peak of 10.5% in September 2022 to 6.4% in July 2023. The slowdown was especially marked between March 2023 and July, with loans to companies slowing at a faster pace than loans to households over this period. General loans and overdrafts contributed the most to the moderation in corporate credit growth, while the slowdown in credit growth to households was broad-based.
The preliminary non-financial public sector borrowing requirement of R78.8 billion in the first quarter of fiscal 2023/24 (April–June 2023) reflected a switch to a deficit from a surplus of R38.6 billion in the same period of the preceding fiscal year. The reversal resulted from cash deficits of consolidated general government, in particular national and local government, as well as non-financial public enterprises and corporations. National government’s deficit largely reflected lower corporate income tax (CIT) collections, along with an increase in expenditure. In addition, extra-budgetary institutions, social security funds and the consolidated provincial government recorded smaller cash surpluses.
National government recorded a cash book deficit of R47.1 billion in the first quarter of fiscal 2023/24 compared to a cash book surplus of R11.5 billion in the same period of the previous fiscal year. The turnaround resulted from a year-on-year decrease in revenue and a faster pace of increase in expenditure. The deficit was primarily financed in the domestic financial markets through the net issuance of long-term government bonds. Consequently, national government’s gross loan debt increased by 10.9% year on year to R4 948 billion as at 30 June 2023 due to a combination of the net issuance of domestic and foreign debt as well as a revaluation following the depreciation in the exchange value of the rand.