South Africa’s economy now stands a good chance of rising above the sub-2% forecast in 2022 after gross domestic product (GDP) swung back to growth in the third quarter, buoyed by the agricultural sector.
However, there is lingering concern that persistent load-shedding, the cumulative impact of interest rate increases on household consumption, and the global slowdown could impede the growth outcome for the fourth quarter.
Data from Statistics South Africa (Stats SA) yesterday showed that GDP surprised on the upside, rising by 1.6% in the three months to September.
This meant the economy dodged a technical recession after contracting by 0.7% in the second quarter.
This GDP print was well above market forecasts of a 0.6% increase, partly because of a low base in the second quarter when floods disrupted operations at the Port of Durban.
Stats SA said that eight out of 10 industries recorded an increase in economic output in the third quarter.
In the first three quarters of this year, the economy expanded by 2.3% year on year, proving remarkably resilient in the face of persistent global and domestic shocks.
StatsSA deputy director-general for economic statistics Joe de Beer said the agriculture, finance, transport and manufacturing industries were the main drivers of growth on the supply side of the economy.
De Beer said agriculture, forestry and fishing were the largest positive contributors, increasing by 19.2% on bumper crops.
He said the size of the economy now exceeded pre-pandemic levels as real GDP measured by production was R1.16 trillion in the third quarter.
“Not only does the 1.6% rise in the third quarter boost the economy back above pre-pandemic levels, but quarterly real GDP is now the highest it’s ever been, exceeding the previous peak of R1.152 billion recorded in the fourth quarter of 2018,” De Beer said.
However, household consumption expenditure surprised on the downside contracting by 0.3% quarter-on-quarter, following growth of 0.6% in the second quarter.
Households were facing higher costs of living during the quarter as the SA Reserve Bank hiked rates to 6.25%, while employment was yet to recover to pre-pandemic levels.
Citadel chief economist, Maarten Ackerman, said the decline in household consumption expenditure showed that consumers were 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,” he said.
“Unemployment is at an all-time high and many consumers are running out of the excess savings that they had built up during the pandemic.”
Nonetheless, this large upside surprise in third-quarter growth has left a number of economists optimistic about the more than 2% GDP growth for 2022, and that 2023 could see inflation and interest rates surprisingly lower.
Nedbank economist, Johannes Khosa, said they expected softer growth in the fourth quarter. “Even so, we have revised our growth forecast for 2022 up considerably to about 2.4% from 1.9% previously,” Khosa said.
“Next year, weaker global demand, softer commodity prices, persistent load shedding, elevated inflation, and higher interest rates are still expected to weigh down economic activity. We expect GDP growth to slow to 1.4% in 2023, still brighter than our earlier expectation of 1.1%.”
Meanwhile, Momentum Investments economist Sanisha Packirisamy said the Large upside surprise in third quarter growth could leave the annual figure closer to 2.5%
A high incidence of load shedding weighs on the fourth quarter outlook for growth, and security of electricity supply remains a key priority.
“After taking into account a firmer-than-expected third quarter figure, we expect growth to average closer to 2.5% in 2022, before slowing to just above 1% next year,” Packirisamy said.
Meanwhile, President Cyril Ramaphosa welcomed the growth GDP as an encouraging and hopeful indication that the Economic Reconstruction and Recovery Plan was bearing fruit.
“Given the condition of our economy, we have no room to be complacent, but we do have room to acknowledge that our economic recovery is in progress and that our Economic Reconstruction and Recovery Plan, conceived amid the Covid-19 pandemic, is bearing fruit,” Ramaphosa said.
BUSINESS REPORT