GDP “shocked” in quarter four, plummeting to levels last seen in the third quarter of 2021 at the height of the pandemic, as most major sectors contracted on the back of rolling power outages.
Stats SA data released on Tuesday shows that after rallying in the third quarter of 2022, GDP declined 1.3% in the fourth quarter following an upwardly revised 1.8% rise in the previous quarter. SA experienced a contraction revised down to 0.8% in the second quarter and downwardly revised 1.6% growth in the first quarter.
Even though a fourth-quarter contraction was very much on the cards, the numbers are far worse than expected by economists. Market estimates ranged from a contraction of 0.7% to growth of 0.6%.
Stats SA data shows that the relapse in economic activity was broad based, with seven out of 10 sectors recording quarterly decreases. The agriculture sector shocked, contracting 3.3% in quarter four after growth of 30.5% previously. Stats SA said the fall in output reflected weakness in field crops and horticultural products.
Mining, manufacturing, and electricity, gas and water also fell in the third quarter.
Stanlib chief economist Kevin Lings said the fall in mining was “concerning”. Mining production contracted by 7% in 2022, falling by a total of 9.5% since 2017. Mining activity recorded sharp contractions in five out of the past six quarters.
“While the sector is clearly facing a number of structural challenges, the increased electricity outages coupled with failing rail and port infrastructure have aggravated the situation at a time when international commodity prices have been elevated,” Lings said.
“The sector is deploying a significant amount of capital into energy projects to mitigate the damage being inflicted by Eskom. However, rail and port capacity will remain a significant constraint, impeding any expansion plans within some of the key mining sub-sectors.”
Stats SA data shows that manufacturing and the electricity, gas and water sectors fell 0.9% and 1.9% quarter on quarter, respectively.
The construction sector surprised, posting growth of 0.5% after growth of 3.9% the previous quarter, mainly reflecting increased activity in commercial buildings. Although moderate, consecutive growth over the past two quarters is encouraging, bouncing back from a prolonged recession.
On the expenditure side of GDP, household consumption expenditure grew by 0.9% in the second quarter, following a 0.3% quarterly decline.
Gross fixed capital formation grew by 1.3% quarter on quarter, up from 0.3% from the previous quarter, primarily supported by private enterprises’ fixed investment. General government fixed investment also grew, increasing by 2.5% on a quarterly basis from 3.5% previously.
Data shows that fixed investment by public corporations fell 2.3% in the fourth quarter.
The data confirms that SA’s economic activity is unlikely to improve soon as severe power cuts and fiscal consolidation weigh on the economy.
With a quarterly contraction of 1.3%, fourth-quarter GDP means the country is back below the level of economic activity that prevailed before the start of Covid, while the population has increased by more than 2-million since 2019.
In addition to persistent electricity outages, which reached 149 consecutive days of load-shedding on Tuesday, the country must also contend with rising interest rates, weak consumer and business confidence, and increased political uncertainty ahead of the 2024 election.
For 2022, the SA economy expanded by 2%, sharply lower than the 4.9% year-on-year growth in 2021.
Africa economist at Oxford Economics Jee-A van der Linde said 2% growth was not enough to tackle the country’s structural issues. He added that with SA experiencing power outages on an unprecedented scale, the chance of a recession this year had increased.
Anchor Capital investment analyst Casey Delport said that typically material job creation in the local economy had occurred only when GDP growth approaches 3% a year.
“The SA economy is simply not growing at an adequate rate to sustainably boost long-term employment prospects for South Africans. Unfortunately, a growth rate of about 1%-2% is still well below the rate required to inspire a broad-based increase in private sector fixed investment and widespread job creation,” Delport said.
Nedbank’s Crystal Huntley said the bank’s preliminary forecast was for GDP to shrink 0.5% on a quarterly basis in the first quarter of 2023, “which means the economy probably entered a technical recession”.
Huntley said Nedbank had now revised downward its GDP forecast to growth of only 0.1% in 2023, a further downgrade from 0.4% previously.
“The risks to our forecasts remain on the downside. There is a strong probability that the economy could contract over 2023 as a whole,” Huntley said.
Lings said Stanlib expected SA’s economy to grow by only 0.7% in 2023, down from its prior estimate of 0.9%.
“This forecast would be significantly higher if the country’s productive sectors — mining, construction and manufacturing — were embarking on a significant capex and employment growth initiative. In that regard, the president’s Energy Action Plan ... is critical to reinvigorating the SA economy over the coming years,” Lings said.
He said a growth rate of about 1%-2% was still well below the rate required to inspire a broad-based increase in private sector fixed investment and widespread job creation.
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