Piecing together the Q4 GDP puzzle ahead of Budget


This week was never going to be as exciting as next week will be (for an SA-focussed macroeconomist, at least), but it was still important to better understand the Q4 GDP performance. See the week ahead below for a brief overview of our expectations for next week’s National Budget. Domestically, we saw some high-frequency data for December this week. The internal trade data was bleak, but not as bleak as expected and mining is set to make a positive contribution to Q4 GDP growth following a quarterly contraction in Q3. Indeed, so far, it seems like there is some upside risk to our Q4 GDP forecast. Even full-year growth may come out slightly better than the 0.6% we have pencilled in now. It must be said that agriculture is difficult to gauge (and surprised most analysts in Q3) and we have very little information on large parts of the tertiary sector. On the expenditure side, the big unknowns are inventories and net trade amid the intensified logistics constraints in Q4 (we try to make sense of those dynamics in our 2024Q1 Economic Prospects, which clients can read here

On the international front, the UK and Japan slipped into technical recessions (defined as two consecutive contractions in quarterly GDP), but the big driver of market movements was the US CPI print early in the week. While the rate of price increases slowed in January, the moderation was less than expected and markets scaled back US Fed rate cut expectations (again). The opposite happened in the UK where inflation came out lower than expected and bets on rate cuts increased – it is interesting to note that UK inflation (steady at 4% y-o-y) nonetheless remains above that of the US (down to 3.1% y-o-y) in January. Following the US CPI print, the dollar surged, with the rand depreciating back above R19/$ as a result and the gold price closed below $2 000/oz for the first time since mid-December. The tide turned on Thursday after January US retail sales data was quite a bit weaker than expected and jobless claims softened, which cast doubt on the strength of the consumer heading into 2024. The rand managed to claw back earlier losses and closed Thursday flat against the dollar, euro and UK pound. Gold still closed lower w-o-w, but above Tuesday’s lows. Platinum performed sightly better last week.

The oil price remains volatile as tension in the Middle East continues to build. Israeli Prime Minister Benjamin Netanyahu once again said that a permanent ceasefire is not on the table and that the country would push for a total victory over Hamas. At the same time, there are increased worries about the clash between Hizbollah (Lebanon) and Israel turning into a full-blown war after Israel carried out numerous airstrikes in South Lebanon (in retaliation for a suspected Hizbollah attack on Israel). Steady US oil production has so far prevented the oil price from blowing out despite increased geopolitical unrest in the Middle East, but crude is trading higher than at the start of the year. Indeed, with a so far higher Brent crude oil price and a weaker rand exchange rate in February (relative to January), fuel prices could rise once more next month, keeping pressure on inflation.


On Wednesday, Finance Minister Enoch Godongwana will have the daunting task of presenting a budget that keeps government expenditure in check in the face of a sluggish economy (and in an election year), while ‘finding’ the additional revenue needed to curtail the rise in debt levels.

On the expenditure side, (more) support for state-owned enterprises (SOE), especially Transnet, will be important to look out for. Treasury has already extended the guaranteed loan facility to Transnet, but it still needs R100bn for corridor investment. However, unlike straightforward bailouts, as we have seen with other SOEs in the past, it seems like the government is more open to private sector participation in the logistics space. It would be welcomed if we saw a mechanism that brings in private partners and development finance institutions. Beyond the logistics space, the Budget is likely to tote infrastructure spending in general. As unpacked in last week’s Weekly, there were some hints in the State of the Nation Address about extending and improving the SRD grant. The President spoke about National Health Insurance. We are not expecting any major moves on either in this budget, with Treasury likely being firm on additional expenditure streams only possible with sufficient, sustained revenue. The President also mentioned some funds (including the Climate Change Response Fund) that would need ‘funding’. Finally, there could be more on the need for a new, more credible fiscal anchor with the current expenditure ceiling not being a hard ceiling. There is also likely going to be mention of the need for the government to reconfigure (i.e. shrink), although beyond promises to keep the wage bill in check, we do not expect more news in the Budget.

Regarding revenue, we suspect that there could be an announcement on using the gold and foreign exchange contingency reserve account (GFERCA). Without going into all the technical details, a prudent approach to using some of the funding – for example paying off some foreign debt – coupled with clear guidelines on how the funds could be used going forward might actually be welcomed by the markets. The Medium Term Budget Policy Statement (MPTBPS) signalled a further R15bn rise in taxes. While you could ‘get there’ by lifting the VAT rate or pushing up corporate or personal tax rates, we think this is unlikely to happen this year for a variety of reasons. It will likely be achieved by bracket creep and the hope of increased efficiency in tax collection.

We are much more downbeat than Treasury’s latest (albeit by now outdated) debt projections. With revenue likely to be less than estimated in the MTBPS and spending more, the picture should be worse than presented in November last year. In November, Treasury had debt peak at 77.7% of GDP in 2025/26 and then very slowly taper off. We only see a peak two years after that, with debt having risen to about 83% of GDP by then.

Beyond the budget, we will see the first consumer inflation (CPI) data for 2024 and the unemployment rate for 2023Q4 released by Stats SA next week. We anticipate headline inflation to accelerate to about 5.4% y-o-y from 5.1% in January. While inflation is set to moderate through 2024, the first few months will be bumpy amid high fuel prices and increased medical aid premiums. Internationally, the preliminary February PMI figures for major advanced economies will be coming out on Thursday. There will, as usual, also be some interest in the FOMC minutes covering the Fed’s January meeting. 



Following on from last week, Stats SA released a slew of real economic data for December 2023. In the primary sector, mining production rose by 0.6% y-o-y in December after a 2.9% decrease in the prior month. Production of PGMs (9.4% y-o-y), coal (5.3%) and chromium ore (19.9%) all increased. Important for GDP, seasonally adjusted (sa) mining production rose by 2.5% q-o-q in Q4. This was off the back of an 8.2% increase in PGMs and a 5.3% rise in coal. Looking at sales, nominal mineral sales rose by 16.8% q-o-q (sa) in 23Q4. The December data suggests that the mining industry likely positively contributed to GDP growth in Q4 after a 1.1% q-o-q contraction in mining in Q3. For the full year, mining production edged down by 0.4%, while mineral sales at current prices declined by 10.3% due to lower commodity prices.



Stats SA also released the internal trade data for December. Retail trade sales rose by 2.7% y-o-y in December, following annual declines in October and November. Retailers in textiles reported the largest gains (7.0% y-o-y). Wholesale trade sales performed dismally in December, declining by 8% y-o-y. Motor trade was not much better, registering a 2.5% y-o-y decrease. A 13.5% y-o-y fall in the value of new vehicle sales corresponds to the data from naamsa showing a 3.3% y-o-y drop in the number of new vehicles sold in December. For Q4, the trade figures are as follows: retail trade sales ticked down by 0.4% q-o-q sa, wholesale trade sales decreased by 4.8%, and motor trade declined by 2.7%. This suggests that the trade industry likely subtracted from GDP in the fourth quarter – albeit that the performance is bleak than we initially expected. Looking at the full year, real retail trade sales decreased by 1% in 2023. This reflects the pressure that high prices have placed on consumer spending. In addition, wholesale trade sales fell by 3.1%, and motor trade sales decreased by 1.8% in 2023. 


Finally, moving to the secondary sector, the real value of building plans passed increased by 1.1% q-o-q (sa) in Q4. Residential building plans passed decreased by 4.7% q-o-q. Meanwhile, non-residential building plans and additions and alterations rose by 1.4% and 11.3%, respectively. This follows other secondary sector data, which revealed a minimal 0.1% q-o-q sa increase in manufacturing production in Q4. In 2023, the real value of building plans passed plummeted by 18.0%. Decreases were reported for residential buildings (-23.1%), additions and alterations (-14.7%) and non-residential buildings (-9.0%).



Market expectations were for a moderation to 2.9% y-o-y, but US headline CPI ‘only’ cooled to 3.1% y-o-y in January, from 3.4% y-o-y in December. Notable reductions in annual energy costs drove headline CPI lower, with gasoline, utility gas, and fuel oil experiencing deflation. Headline CPI accelerated by a faster-than-expected 0.3% m-o-m, the fastest rise in four months. Core inflation, which excludes food and energy costs, remained unchanged at 3.9% y-o-y, with the monthly core rate advancing to 0.4%.

After a strong holiday spending season with cold weather keeping shoppers at home, US retail sales declined by a bigger-than-expected 0.8% m-o-m in January. The decline was broad-based and marked the largest fall in retail activity since February last year. Core retail sales, which excludes automobiles, gasoline, building materials and food services, unexpectedly fell by 0.4% m-o-m in January.


Across the Atlantic, going against fears for a reacceleration, the annual rate of increase in UK headline CPI remained steady at a two-year low of 4% in January. The biggest downward pressures came from food and household goods. At 5.1%, the annual core inflation rate was unchanged and a touch lower than the market consensus. Data on economic activity in the UK was less positive, with the economy slipping into a recession. Real GDP contracted by a bigger-than-expected 0.3% q-o-q in 2023Q4, following a 0.1% decline in Q3. The decline in output was broad-based, as was the case on the expenditure side, with net trade volumes, household spending and government consumption all posting quarterly declines.


Economic morale improved in Europe’s largest economy, with the ZEW Indicator of Economic Sentiment for Germany edging higher in January. The indicator rose for a seventh consecutive month to an above-consensus 19.9 points, its highest level in a year. This surge in economic sentiment is primarily attributed to the anticipation that major central banks, including the European Central Bank (ECB), are poised to initiate interest rate cuts within the year. However, the assessment indicator of the current economic situation in Germany deteriorated significantly, falling to -81.7, the lowest level since June 2020.


Finally, Japan’s economy fell into a recession for the first time in five years. Real GDP unexpectedly declined by 0.1% q-o-q in 2023Q4, following a downwardly revised 0.8% q-o-q contraction in Q3. Private consumption weighed most on output, declining for the third consecutive quarter amid elevated cost pressures and global headwinds.


Editor: Lisette IJssel de Schepper
Contributors: Tracey-Lee Solomon and Romano Harold

Tel: +27 (21) 808 9777
Email: lisette@sun.ac.za

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Name: Piecing together the Q4 GDP puzzle ahead of Budget