Stronger-than-forecast growth in the first quarter of 2021 had economists scrambling to update their full-year forecasts, even as they warned that slow progress in implementing key reforms will hinder longer-term prospects.
GDP rose 4.6% in the three months to March, faster than the 3.2% median forecast of 16 economists surveyed by Bloomberg, Stats SA data showed on Tuesday.
In non-annualised terms, GDP expanded 1.1% in the first quarter from 1.3% in the fourth.
Mining — which has been a beneficiary of a boom in commodity prices as Covid-19 vaccinations became available and economies opened up late in 2020 — was a star performer, together with finance. With the global economy set for a strong rebound in 2021, economists are optimistic that SA’s economy will maintain its momentum in 2021 and exceed the Reserve Bank’s forecast.
Nedbank’s economics team revised its estimate to 4.9% from 4.4%. Investec economist Annabel Bishop said SA could record GDP growth of about 5% provided Eskom power cuts do not worsen, while Citadel’s Maarten Ackerman said that SA’s economy may reach pre-Covid levels by the end of 2021, much earlier than the Bank previously predicted.
The central bank, whose interest rate cuts in 2020 helped to keep consumer spending resilient, said in May that the economy would expand 4.2% in 2021. During that meeting, governor Lesetja Kganyago said it would “take time” for the economy to reach the levels seen before the Covid-19 outbreak.
While SA’s improved performance is encouraging, it came on the back of a 7.1% contraction in 2020, the worst in a century, after the government responded to the Covid-19 outbreak by instituting one of the toughest lockdowns in the world.
Sustained recovery
A sustained economic recovery is seen as crucial in helping the government stabilise its debt pile by growing tax revenue, which is necessary to avoid SA’s credit rating falling further down the ladder of junk status.
BNP Paribas senior economist Jeff Schultz said the bounceback in consumer spending is proving to be quite resilient, though this could be driven by pent-up demand from those who decided, and had the capacity, to put money aside in 2020. Therefore it may not last.
Capital Economics Africa economist Virág Fórizs said she expects the economy to grow by 4% in 2021, noting the country still faces the challenges of a third wave of Covid-19, while load-shedding remains a “perennial” problem. “SA’s economy weathered a second virus wave relatively well, but with cases rising again and other headwinds hanging over the outlook, the recent strength of the recovery is unlikely to last,” Fórizs said in a note.
An indication that the country still has some way to go to boost business confidence is that gross capital formation, a key measure of confidence as it shows the ability and willingness of companies to invest in fixed assets, was down 2.6%.
“This emphasises the need for government to do more in terms of implementation and reform to create an environment where business is more confident and happier to invest,” Ackerman said in his note.
The rand failed to benefit from the release, trading marginally softer after the data was released. The rand has firmed more than 8% in the year to date, reaching a 2021 best of R13.406/$ earlier in June boosted by stronger commodities and speculation that interest rates in developed economies will stay near historical lows, boosting demand for higher-yielding assets in emerging markets such as SA. It ended the day 0.6% weaker at R13.57/$.
The currency looked likely to trend back towards R14/$ in the second half and reach R14.30/$ by the end of the year, said Rand Merchant Bank analyst Kim Silberman. “In the second half of the year the global risk-on environment may start to get muddied,” Silberman said.
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