Nedgroup Investments and Taquanta Asset Management

Economic Activity

South Africa's economy is expected to expand below its potential growth rate over the foreseeable future. Issues such as sub-investment ratings, recurring power outages, and increasing political uncertainty, are expected to increase government’s cost of servicing debt. This situation might compel companies to make tough choices like cutting down on capital spending or reducing labour force as they grapple with deteriorating forms of public infrastructure.

In the third quarter of 2023, South Africa witnessed a 0.7 percent year-over-year contraction in its gross domestic product (GDP), contrary to the median estimate of a 0.1 percent year-over-year contraction in a Bloomberg survey. This 0.2 percent decline in output compared to the previous quarter has since raised concerns about a potential recession.

Similarly, the world's three largest economies are also experiencing a slowdown.  China is contending with lower industrial activity and challenges within its property sector. The European economy faces vulnerabilities stemming from an energy crisis and decreased demand for exports. The United States (U.S.) is at risk of high interest rates on the back of bloated debt levels. Additionally, the shape of the U.S. treasury curve is also signalling an economic downturn over the near term.