(Bloomberg) -- South Africa risks missing its 2024 economic growth forecast after the agricultural sector’s deepest slump in at least three decades led to an unexpected contraction in the third quarter.
The 0.3% quarterly decline meant gross domestic product expanded a meager 0.4% in the nine months through September, data published by Statistics South Africa on Tuesday shows. That suggests the National Treasury and the South African Reserve Bank’s 2024 growth estimates of 1.1% will likely prove overly optimistic.
The agricultural sector contracted 28.8% in the third quarter as drought curbed output of crops such as corn, soybeans, wheat, sunflower and vegetables in parts of the country, the statistics agency said.
Economists from Nedbank Group Ltd. and Goldman Sachs Group Inc. revised their 2024 growth forecasts lower after the release to 0.5% and 0.6% respectively from 1%.
Those at FNB and Bloomberg Economics, who anticipated expansion of 1% and 1.1% respectively for this year, signaled downward revisions were likely. Still, they were more optimistic about the outlook for the current quarter and next year.
“We still expect the economy to recover in the fourth quarter before strengthening and broadening throughout 2025.” Nedbank’s economists said. They expect improving consumer sentiment, softer inflation and interest rate cuts to support growth.
South Africa’s annual inflation rate has been below the 4.5% midpoint of the central bank’s target range, where it prefers to anchor expectations, since August. That’s persuaded its monetary policy committee to cut interest rates twice by a quarter point since its easing cycle started in September to 7.75%.
The worse-than-expected GDP data may also boost the case for the MPC to deepen its cutting cycle. Traders added to bets on lower borrowing costs, with forward-rate agreements pricing in 73 basis points of reductions over the next 12 months, compared with 69 basis points before the release of the growth data.
“We think today’s downside surprise to the SARB’s forecast is incrementally dovish for South Africa’s rate prospects and increases our conviction in consecutive rate cuts at the next two MPC meetings and a lower terminal rate — 6.50% — than discounted by the market,” Andrew Matheny, economist at Goldman Sachs wrote in a note.
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