GDP figures for the fourth quarter of 2021 due on Tuesday are expected to show that the economy rebounded from the social unrest-induced contraction of the third quarter, but it still remained vulnerable to uncertainties in Ukraine and lack of reforms.
FNB chief economist Mamello Matikinca-Ngwenya said while the bank was particularly encouraged by the strong economic rebound, it was still concerned about the “underlying structural weaknesses” such as the slow progress on needed reforms, inefficiencies of the state and corruption-related activities that prevailed pre-pandemic.
She said the structural weaknesses together with the ongoing Russia-Ukraine conflict will have a dire impact on the economy.
FNB expects GDP to grow 1.1% quarter on quarter seasonally adjusted and 1.7% year on year, non-seasonally adjusted. FNB estimates that the economy is likely to have rebounded by 4.7% in 2021 from a pandemic-induced contraction of 6.4% in 2020.
Matikinca-Ngwenya said FNB’s predictive model shows that the economic rebound will be led by the trade sector, followed by the manufacturing, agriculture, financial services, real estate and business services sectors. But she warned that the mining, electricity, water and gas sectors are expected to have limited the growth rebound based on their respective poor performances in that quarter.
Bloomberg consensus says the GDP data is broadly expected to show a rebound to a rise of 1% quarter on quarter and a 1.5% rise year on year.
Nedbank said they predict an economic bounce back in the last quarter of 2021, with GDP growing by around 1.3% quarter on quarter after shrinking by 1.5% in the third quarter. Its chief economist Nicky Weimar said the economy benefited from production-side factors including firm global demand and higher commodity prices, “even though the upside was partly contained by persistent load-shedding”.
She said on the consumption side, most of the support was expected to come from household demand, which benefited from a slight improvement in household finances and softer lockdown restrictions.
“This will push growth for calendar 2021 to 4.8%, following a 6.4% contraction in 2020,” said Weimar.
Another impediment to domestic economic growth is the upward pressure on inflation, which is set to squeeze household purchasing power across the globe.
Citadel Global director Bianca Botes said while many argue that the war in the Ukraine might deter the US Federal Reserve from hiking interest rates, Fed chair Jerome Powell made it clear last Wednesday that it will proceed with its plan to hike rates in March.
“Powell said he was ready, if needed, to use larger or more frequent rate moves if inflation does not slow, and may over time need to push rates to more restrictive levels of above 2.5%. This would slow economic growth rather than simply stimulating it less robustly,” Botes said.
Bureau for Economic Research chief economist Hugo Pienaar said because of the soaring global inflation, “domestic markets also expect a more aggressive rates hike by the SA Reserve Bank in March, a move that will risk compounding the impending hit to real GDP growth.
Pienaar said even though Russia contributes only about 2% to global GDP, the sheer scale of the expected GDP decline in Russia will also subtract from global GDP.
“And because the hit to global growth is likely to be concentrated in Europe, a leading export market for SA, the spillovers will add to the downward pressure on domestic growth with the country seeing surging transport costs, and also possibly adverse confidence effects.”
But it is not all bad news. Economists agree that commodity exporters such as SA are expected to benefit from elevated commodity prices and new market opportunities due to the Ukraine-Russian crisis. But FNB warned that the benefit will depend on a number of factors, including the state of global supply chains, domestic port efficiencies, production costs and the global economic trajectory.
Update: March 7 2022
This story has been updated with additional information.
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