The hit to SA’s GDP during the third quarter of 2021 was worse than expected as civil unrest and tougher lockdown restrictions during the pandemic’s third wave eroded the gains made by the country’s economic recovery.
Though the decline may not be enough to derail economists’ expectations for full-year growth in the region of just less than 5%, factors such as how the Omicron-driven fourth wave of the pandemic plays out and electricity supply constraints cloud the outlook.
The quarterly contraction of a seasonally adjusted 1.5%, down from a revised 1.1% expansion in the second quarter, prompted finance minister Enoch Godongwana to red-flag the economy’s lacklustre performance.
In a speech to the National Council of Provinces on the Division of Revenue Bill, Godongwana warned that at these levels “growth has implications for the revenue that we collect” at a time when the fourth wave’s effect on government resources and human lives was still unknown.
The GDP data, released by Stats SA on Tuesday, was worse than the consensus forecast for a 1% contraction by economists surveyed by Bloomberg.
Though GDP grew by 2.9% year on year, it remains well below pre-pandemic levels, with the economy the same size as it was in the first quarter of 2016, according to Stats SA.
The sectors that were the biggest drag on the GDP reading were trade and manufacturing, which contributed -0.7 and -0.5 percentage points, respectively, to the overall decline.
“Many industries or components were impacted either by the July unrest [or] the Covid-19 lockdowns,” said Michael Manamela, chief director of national accounts.
Agriculture also took a hit, declining 13.6%, and was the third-largest contributor to the headline decline with 0.4 percentage points. According to Manamela, this was due to declines in animal products and field crops, with the unrest in KwaZulu-Natal affecting poultry and pig production.
The disappointing headline number suggests that SA’s recovery “is taking slightly longer”, Carmen Nel, economist and macro strategist at Matrix Fund Managers told Business Day
The negative surprises were, however, confined to trade, manufacturing and agriculture, with sectors such as finance, real estate and business services doing better than expected.
Though other indicators such as the manufacturing purchasing managers index suggest the fourth quarter will see a rebound of between 1.2% and 1.5%, the emergence of Omicron poses a downside risk to this forecast, said Nel.
The release comes as SA has headed into its fourth wave of the pandemic driven by the Omicron variant.
Though the government has not altered SA’s lockdown levels, the outbreak has raised the spectre of deeper economic restrictions and led to a number of countries imposing travel bans on SA.
Meanwhile, load-shedding has continued to dog the economy in the final months of the year, weighing on business activity and confidence levels.
The third-quarter data and elevated uncertainty is likely to result in analysts downgrading their GDP expectations for 2021 from about 5% towards 4.5%, Nel said.
The recovery is uneven and not broad based across all sectors though GDP should reach pre-pandemic levels in the third quarter of 2022, which is an improvement on expectations at the start of the year, said FNB senior economist Thanda Sithole.
There are near-term headwinds to the outlook, however, including the Omicron resurgence, unreliable electricity supply, rising prices, including fuel prices, and the ongoing shortage of critical raw and other input materials, Sithole said.
The GDP figures follow dire third-quarter employment data that showed joblessness rose to a record high of 34.9%, while unemployment as measured by the expanded definition, which includes those who have stopped searching for work, reached 46.6%.
KwaZulu-Natal and Gauteng — the epicentres of the violence in July — accounted for about half of the 660,000 jobs lost in the third quarter, according to Stats SA.
On the expenditure side, GDP contracted by 1.6% on a quarterly basis, down from the revised 1.1% recorded in the second quarter. Declines in household expenditure and exports were the biggest contributors to the headline contraction.
Household expenditure declined by 2.4%, while exports fell 5.9%.
Update: December 7 2021
This story has been updated with comments throughout.
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