By Kevin Lings*
In the third quarter of 2022, SA GDP grew by an encouraging 1.6%q/q, (seasonally adjusted, but non-annualised). This compares with a decline of -0.7%q/q in the second quarter of 2022 and growth of 1.7% in Q1 2022. The latest increase in economic activity was broad-based (including agriculture, mining, manufacturing, accommodation, construction, finance and transport), and well above market expectations for growth of 0.4%q/q (STANLIB 0.5%q/q). Although the latest growth rate is helpful, it is off a low base, furthermore, given persistent electricity outages, rising interest rates, declining real household incomes and political uncertainty the economic outlook remains challenging going into the first half of 2023.
The latest increase in GDP means that the economy is 1.2% above the level of economic activity that prevailed prior to the start of COVID-19 and the largest it has ever been, albeit by a relatively small margin.
The better-than-expected GDP performance was especially boosted by the broad financial services sector, which contributed 0.5 percentage points to the growth outcome (helped by increased credit activity), the agricultural sector, which also contributed 0.5 percentage points to the growth outcome (off a low base given that the Q2 2022 growth outcome was revised down significantly to a decline of -11.1%q/q ), transport/communication which added 0.3 percentage points, and manufacturing which provided a further 0.2 percentage points after a very sharp decline in Q2 2022. It is also worth highlighting that the broad retail/wholesale sector grew by 1.3% in the third quarter despite Stats SA reporting a quarterly decline in retail spending. This is explained by a combination of factors including a noticeable increase in wholesale trade activity as well as a further uplift in foreign tourism after the devastating impact of COVID.
On an annual basis, SA GDP rose by an impressive 4.1%y/y, but once-again base effects played a role in flattering the percentage change. For 2021, as a whole, the South African economy expanded by 4.9%, after declining by a revised -6.3%y/y in 2020, which was the country’s worst annual economic performance since the GDP data started to be reported. Given the latest (better than expected) increase in GDP, the South African economy is now forecast to grow by around 2.2% in 2022, up from a prior estimate of 1.8%. This forecast would be significantly higher if the country’s productive sectors (mining, construction, and manufacturing) were embarking on a significant capex and employment growth initiative – in that regard the President’s recently announced ‘Energy Action Plan’ is critical to re-invigorating the SA economy over the coming years. Unfortunately, a growth rate of around 2.0% is still well below the rate required to inspire an increase in private sector fixed investment and widespread job creation.
As we have mentioned many times previously, in terms of trying to improve South Africa’s growth performance over the next few years, one of the key challenges the SA economy faces is that the traditional policy measures a country would typically use to revitalise economic growth under current circumstances are somewhat restricted – most especially fiscal and monetary policy. In particular, government cannot afford to cut taxes extensively in order to boost household consumption as well as corporate investment given their extreme fiscal constraints and the need to control inflationary pressure. Equally, the SA government does not have the scope to meaningfully increase its own spending given that their current debt trajectory (as confirmed by the policy stance highlighted in both the February 2022 National Budget as well as the October 2022 Medium Term Budget Policy Statement). At the same time, the SA Reserve Bank has clearly signalled that interest rates can be expected to move higher during early 2023, and will continue to act as a constraint on growth. This means that government’s private/public infrastructure growth initiative (as outlined in the Reconstruction and Recovery plan) needs to move ahead rapidly in trying to initiate a wide range of investment projects in order to stimulate growth and employment. This includes deregulating economic activity and continuing to make-it easier to do business.
- Kevin Lings | Stanlib Chief Economist
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