Business Maverick

ECONOMIC OUTLOOK

South Africa’s GDP grows faster than expected, but potholes litter the road to recovery

South Africa’s GDP grows faster than expected, but potholes litter the road to recovery
(Photos: Adobe Stock | Waldo Swiegers / Bloomberg / Getty Images)

South Africa’s economy grew 1.9% on a quarter-on-quarter and seasonally adjusted basis in the first quarter (Q1) of 2022, data showed on Tuesday. This is welcome news – but the road to recovery in Africa’s most advanced economy remains strewn with potholes, literally and figuratively.

The data, unveiled by Statistics South Africa (Stats SA) on Tuesday, exceeded market expectations of quarter-on-quarter growth of 1.2%. 

This is a rare source of cheer on the domestic economic front – and certain top politicians faced with scandal might be expected to milk it for all it is worth. 

But the momentum will be hard to maintain. April saw load shedding crank up while KwaZulu-Natal was drenched in deadly floods. And surging inflation and rising interest rates will contain consumer spending. 

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“We already know that in Q2-2022 we will have to factor in the impact of the KZN floods, the potential slowdown in external sectors from China’s zero-Covid measures, and the deterioration in electricity availability. 

“All of this will take the shine off Tuesday’s numbers.  

“Chances are that Q1-2022 was as good as it gets – for a while at least,” Razia Khan, Chief Africa Economist at Standard Chartered Bank in London, told Business Maverick

Still, economists are revising their 2022 growth forecasts higher, and expect Treasury and the South African Reserve Bank to follow suit. 

“Following [Tuesday’s] data release, we have adjusted our 2022 growth forecast slightly higher to 1.9% from 1.7%, and will closely monitor some of the prevailing key risks,” FNB Senior Economist Thanda Sithole said in a note on the data. 

Eight of the 10 broad sectors that add up to the gross domestic product measurement expanded during the quarter. The big surprise was the finance, real estate and business service sector, which grew 1.7% during the three months to the end of March. 

This exceeded most expectations and suggests mounting activity in a broad area that is one of the engines, for better or worse, of a 21st-century economy. 

“The manufacturing industry increased by 4.9% in the first quarter, contributing 0.6 of a percentage point to GDP growth. Seven of the 10 manufacturing divisions reported positive growth rates in the first quarter,” Stats SA said. This is positive, but there are indications the sector is not performing in the same gear this quarter. 

The mining sector has been regarded as one of the bright spots of the economy and elevated prices are still flowing to the bottom lines of many mining companies. 

But mining production declined 1.1% in the quarter, the third consecutive quarterly decline. 

The Sibanye-Stillwater gold strike, which began 9 March and is ending this week, probably did not help and the sector has been hit by new waves of social unrest. It also has to contend with Transnet’s woes, among other headwinds. 

The construction sector declined for the fourth quarter running, contracting 0.7%. This is worrying indeed as it can be taken as a partial measure of broader investment into the economy and its labour-intensive nature is critical to job creation.  

Much faster rates of growth will remain elusive as Eskom battles to keep on the lights, food and fuel prices surge, and ANC infighting hobbles the governing party’s ability to craft policy. 

There are potholes galore in South Africa’s road to economic recovery, both literal and figurative. Sadly, as Khan of Standard Chartered said, this may be as good as it gets for a while. 

And that just ain’t good enough, folks. DM/BM

 

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