Recovering lost ground
There are signs of resilience — but the contraction in construction and fixed investment raises concerns
SA has bounced back slightly faster from the third-quarter unrest than expected. This has pushed the annual growth rate for 2021 to
4.9% year on year — a huge turnaround from the record 6.4% year-on-year (y/y) contraction suffered in 2020 at the height of the pandemic.
Granted, economic activity has yet to recover to the peak recorded in the second quarter of 2021 before the July civil unrest, tighter lockdown restrictions and the return of power cuts took their toll.
Still, SA’s V-shaped recovery has been faster than expected, with the economy now only 1.8% below the GDP level that prevailed in the first quarter of 2020 in real terms (see graph).
Things could have been a lot worse had the Omicron wave been more severe, or had the government responded with harsher restrictions. As it turns out, economic activity slightly more strongly than expected in the fourth quarter to 1.2% quarter on quarter (q/q), compared with a downwardly revised -1.7% q/q contraction in the third quarter.
“Overall, the economy is showing remarkable resilience to loadshedding in this data,” says Intellidex head of capital markets research Peter Attard Montalto. However, he says the fourth-quarter bounceback remains “uneven”.
For 2021 as a whole, the star performers were mining (up 11.8% y/y), agriculture (up 8.3% y/y), and manufacturing (up 6.6% y/y).
But because of their large size, the sectors that made the biggest contribution to the 4.9% y/y growth rate were finance, which contributed growth of 0.9 of a percentage point (PPT), personal services (0.8PPT) and manufacturing (0.8PPT). Finance is the largest industry in SA (accounting for 24% of the economy), followed by personal services (17%), trade and manufacturing (both 14%), and the government and mining (both 9%).
Construction was the only
industry that contracted in 2021, falling by 1.9% y/y despite the low base of activity at the end of 2020, and the government’s insistence that it is prioritising infrastructure.
In fact, construction activity has now declined in each of the past five years, says Stanlib chief economist Kevin Lings. He regards the further fall-off in construction activity as “the most concerning and depressing statistic in the GDP data release”.
At the end of 2021, the construction sector was almost 10% below the activity level recorded at the end of 2015 in real terms, and almost 20% below its 2007 peak.
“It is hard to imagine the economy gaining any meaningful success without a substantial revitalisation
of construction activity,” says Lings.
Furthermore, Attard Montalto says that general government and state-owned enterprise investment remained weak in the fourth quarter, dropping by 7% q/q combined — its poorest performance since December 2017.
This was offset by private fixed investment which, at 4.2% q/q, showed signs of a post-unrest bounce, most of which went into buying machinery, transport and other equipment, and research & development.
However, over 2021 as a whole, public and private fixed investment fell compared with 2020 — the public sector from 4.2% to 4% of GDP and the private sector from
10.4% to 10.2% of GDP, taking gross fixed investment from 14.6% to 14.2% of GDP in real terms.
“On the public side especially, this shows the reality behind all the hot-air infrastructure rhetoric, especially when combined with the weak construction data,” says Attard Montalto.
Turning to the fourth-quarter data, the key growth drivers were personal services, trade, manufacturing and agriculture.
Personal services grew by 2.7% q/q due partly to increased healthcare activity stemming from the national vaccination drive.
As lockdown restrictions eased, trade activity increased by 2.9% q/q with support from the retail, motor trade, tourist accommodation and restaurant, fast-food and catering sectors.
The manufacturing sector’s growth of 2.8% q/q was broadbased but driven mainly by the production of petroleum, chemical and plastic products, as well as food and beverages.
Good rains helped boost agricultural activity by 12.2% q/q but was less of a boon for the mining sector (-3.1% q/q) as it disrupted opencast mines.
Also detracting from fourthquarter growth was the finance industry (-0.8% q/q) and the electricity, gas and water supply industry (-3.4%), with the latter beset by power cuts and infrastructure problems.
Measured from the expenditure side, healthy exports (up 8.5% q/q) and robust household expenditure (up 2.8% q/q) were the most significant contributors to a fourthquarter growth rate of 1.3% q/q.
Capital Economics economist Virág Fórizs says that more recent data points to a continued rebound in activity into 2022, with SA’s purchasing managers’ index painting a “rosy picture” in January and February.
However, forecasts for GDP growth over the next couple of years remain modest, says NorthWest University’s Prof Raymond Parsons. “SA has to do much better if it wants to reduce unemployment and ensure fiscal sustainability in the years ahead.”