GDP ray of sunshine amid all the gloom
After shrinking 0.7% in the second quarter of 2022, the SA economy rallied in Q3. By
It’s neither the news the cynics had expected nor what the fintwit pundits had warned about for months. To judge by the latest GDP data, the South African economy does not seem to be heading off a cliff – not just yet.
Stats SA’s GDP data for Q3 paints a rosier picture than expected, and might give us a reprieve despite jitters about the president’s stolen dollars; political uncertainty; Transnet’s troubles; rolling blackouts; crime; a macro environment marred by war in Ukraine; the effects of the pandemic; supply chain issues; a global economic slowdown; and, and, and...
SA can hardly be described as a growth economy, but at least we’re finally exceeding pre-pandemic levels – buoyed largely by agriculture.
Encouragingly, because the public need all the good news they can get right now, GDP increased by 1.6% in Q3. Real GDP for Q3, measured by production, was R1.16-trillion (at constant 2015 prices).
That’s well above an earlier median prediction of growth of 0.4% in a Bloomberg survey of 12 economists.
Still, it’s not much help to struggling consumers, who are weighed down by the rising cost of living and declining real incomes. Q3 saw a 0.3% decline in household spending, notably on food and nonalcoholic beverages (-0.9%), recreation and culture (-1.6%), and alcohol, tobacco and narcotics (-1.9%).
Economic activity in electricity and water was dragged lower by decreases in consumption – thanks to diminished supply as countrywide rolling blackouts escalated and water shedding took effect in Gauteng.
Manufacturing growth was mainly driven by the automotive sector and food and beverages. Construction increased for the first time since Q1 2021.
Agriculture, forestry and fishing increased by 19.2% in Q3, with increases in field crops and horticulture products.
Finance, property and business services increased by 1.9% in Q3, with growth in financial intermediation, insurance and pension funding, auxiliary activities, real estate activities and other business services.
Land transport, support and communication services also grew, by 3.7%.
Manufacturing was up by 1.5%, with motor vehicles, parts and accessories and other transport equipment making the largest contribution to the increase.
Exports increased by 4.2%, largely owing to increased trade in mineral products, metals used in industry or manufacturing, vegetable products and paper.
Imports increased by 0.6%, driven largely by increases in mineral products and animal and vegetable fats and oils.
PPS Investments portfolio manager Reza Hendrickse is cautiously optimistic that 2022’s growth will exceed the Reserve Bank and Treasury’s sub-2% expectation.
“Better-than-expected third-quarter growth is refreshingly positive given the sustained wave of negative news both locally and abroad. However, we would caution against reading [too much] into the rebound, which was driven largely by more volatile, cyclical elements,” he says.
“Forward-looking data, such as PMIs and confidence measures, also suggest subdued conditions ahead, with electricity availability still a major headwind.”
Hendrickse says the other significant issue is that the global economy is seeing slowing growth and tightening financial conditions, and developed economies are heading towards a recession.
“It would be hard for SA to buck the trend under that scenario, so global factors still pose a significant risk to the domestic growth outlook,” he says.
“After all, the SA economy is highly cyclical given its reliance on global trade and the commodity cycle.”
Escaping a self-induced technical recession – for now – is not a guarantee that we will avoid a downturn in 2023, says Maarten Ackerman, chief economist at Citadel.
“Although the overall economic data was positive, household final consumption – what local consumers are spending – declined in Q3.
“We are a consumer-based economy and our consumer spending is down by 0.3%. This tells us that our consumers are under severe pressure due to higher interest rates and higher inflation.
“Everyone is paying more for their basket of food, services and petrol, and we’re seeing spending cutbacks on food, beverages, furniture and household appliances, equipment, clothing and recreation.
“Unemployment is at an all-time high and many consumers are running out of the excess savings they had built up during the pandemic.”
Consumer spending and economic growth are both expected to decline over the next year and a half, Ackerman warns.
Eskom’s announcement that SA needs to brace itself for at least 18 months of intensified load shedding is bad news, he says. On the bright side, expanding the energy sector offers some hope.
Carmen Nel, economist at Matrix Fund Managers, says quarterly growth was well ahead of consensus expectations of 0.4%. The strong quarterly print and the low annual base – in part owed to the July unrest in 2021 – lifted year-on-year growth to a robust 4.1%.
“The upside surprise was largely due to a strong expansion in agriculture amid another bumper harvest across various grains. In addition, construction, trade, transport, storage and communication, and finance and business services all had a solid quarter.
“Intensified load shedding likely weighed on small businesses in the services sector, with community and personal services contracting in Q3.”
She says the improvement in production across mining, manufacturing and trade mirrored stronger growth in exports and a substantial inventory build, which could either reflect improved supply chains or signal weak domestic demand.
“This would tie up with the decline in household consumption in Q3, as the spending breakdown revealed a defensive bias. Surging food and fuel prices, as well as larger interest rate increases, dampened consumer spending in Q3.”
On the plus side, she says, restaurants and hotels showed improvement, which is probably a reflection of the recovery in inbound tourism.