Still a long way to go
The economy did well to shrug off the restrictions introduced to limit the spread of Covid, but it is not out of the woods yet — and load-shedding and a slow vaccine rollout remain obstacles
ý Better-than-expected GDP data released this week shows there has been a V-shaped recovery in SA’s growth rate, but the pandemic has still put the economy back five years.
According to Stats SA, real GDP sprang back from the R652bn recorded in the second quarter of 2020 (when lockdown restrictions were at their most stringent) to R761bn in the first quarter of this year.
Though a sharp rebound, this is still only more or less equivalent to what the economy was producing in the first quarter of 2016. In other words, the pandemic has knocked it back to the size it was five years ago. The economy is widely expected to surpass its previous peak only during the second half of 2022.
Even so, it did well to shrug off restrictions related to the second virus wave, growing by an annualised 4.6% quarter on quarter (q/q) in the first quarter, or –3.2% year on year (y/y). Though this was slower than SA’s cracking fourthquarter 2020 performance of a revised 5.8% q/q, it still exceeded expectations.
The Bloomberg consensus was for quarterly annualised growth of 3.1% q/q and for the annual pace of contraction to ease from –4.1% y/y to –3% y/y.
“The economy has responded far better than expected since the middle of 2020, especially given the worse-than-expected second wave of infections and deaths,” says Stanlib chief economist
Kevin Lings.
He suggests this may be because SA’s fiscal and monetary policy stimulus has provided more support than it was initially given credit for, while the resurgence in global trade and uplift in commodity prices have clearly offered a significant benefit to the mining and related sectors.
Also encouraging is that the economy appears to have got off to a solid start in the second quarter: manufacturing survey data was strong in April and May, car sales were up and mobility indicators continued to trend higher, even as infection rates climbed.
The first-quarter recovery was broadbased, with eight industries recording positive growth, and outstanding performances by the finance, mining and trade sectors.
Given the extent to which the commodity boom has whipped up raw material prices, it was surprising that the finance industry outdid mining to grow by 7.4% q/q annualised, contributing almost a third to the overall growth rate on its own.
But the mining industry also performed extremely well, growing by an annualised 18% q/q and contributing 26% to the total.
The wholesale and retail sector posted a solid performance, growing by 6.2% q/q, led by increases in sales of petrol, consumer electronics, groceries, health-care services, vitamins and medicines.
However, the manufacturing sector managed only modest growth of 1.6% q/q, compared with 21% q/q in the final quarter of last year.
“Numerous challenges continue to plague the industry, including raw material shortages underpinned by global supply chain constraints and heightened loadshedding,” says Investec economist Lara Hodes.
Measured from the expenditure side, real GDP increased at an annualised rate of 4.5% q/q in the first quarter, compared with a revised 6.1% q/q in the fourth quarter of 2020.
Household consumption grew by 4.7% q/q and contributed almost 45% of the overall increase as consumers splurged on miscellaneous goods and services (including electrical appliances), clothing and footwear (up 22%), furnishings, household equipment and maintenance (up 8.9%), and food and nonalcoholic beverages (up 2.3%).
A R53.2bn annualised swing in inventories, particularly in mining and trade, also spurred growth on the expenditure side. However, this was almost entirely offset by a drop in net exports. Fixed investment growth also faltered.
Despite the better-than-expected first-quarter data, SA still has a long way to go to claw itself out of the hole created by the pandemic.
To grow faster, SA will have to achieve a successful vaccine rollout, generating a “vaccine dividend” in which pent-up demand pushes growth higher, says Lings. In addition, interest rates must remain extremely low, electricity outages broadly manageable and commodity prices elevated, while the government’s reform programme must gain momentum.
Economic research consultancy Capital Economics is not optimistic. It warns that additional lockdown measures, power cuts and fiscal austerity will likely weigh on economic activity in the coming quarters.