The economy posted positive growth in the first quarter, thwarting threats of a technical recession despite very high levels of power shortages in the three months ending March.
Data released by Stats SA on Tuesday shows the economy grew 0.4% quarter on quarter after a downwardly revised 1.1% decline in the prior quarter. Eight of the 10 industries recorded growth on a quarterly basis.
Even though the outcome was in line with the Thomson Reuters consensus, the range of forecasts was wide, running from a contraction of 0.6% — an outcome that would have placed the SA economy in a technical recession as this would mean two successive quarters of negative growth — to 0.6% growth.
The improvement was largely driven by the manufacturing sector, especially food production, which contributed 0.2 percentage points to the quarterly gain, as well as financial services, which also contributed 0.2 percentage points.
Construction activity grew 1.1% in the first quarter compared with growth of 0.4% previously — a significant shift in activity after the sector’s decline for six consecutive years, falling more than 30% in total and decimating the sector’s capital stock, skills base and confidence.
Stanlib chief economist Kevin Lings said while this recent uplift in construction is off an extremely low base, it could signal the start of a sustained upswing, especially since the private sector is in the process of ramping up its investment in renewable energy. “This should start to have a more meaningful impact in 2024/25,” Lings said.
Stats SA data also shows mining production numbers were positive, rising 0.9% in the first quarter.
Foreign tourism increased, reflecting the recovery in the global accommodation and travel industry after Covid-19, as well as the impact of recent large events in the Western Cape, such as the Mining Indaba.
The demand side was underpinned by solid export growth, with smaller positive contributions recorded for household, government and investment spending.
In contrast, the agricultural sector had another weak quarter, falling 12.3% quarter on quarter and subtracting 0.4 percentage points from the GDP growth rate. Research shows agricultural activity has declined in five out of the past seven quarters, hurt by persistent electricity outages, especially livestock farming.
Weakness in the electricity, gas and water sector continued, with activity falling 1% on a quarterly basis, marking the fourth successive quarterly decline due to decreased electricity and water consumption.
Eskom’s power plant breakdowns continue to weigh on the broader sector, with the year-to-date energy availability factor at 53.2% compared with 59.1% a year ago. According to Nedbank, 83% of the time over the first quarter, SA experienced stages 3 to 6 of load-shedding.
Nedbank economist Crystal Huntley said electricity shortages remain a constraint on economic activity despite substantial fiscal support and the appointment of an electricity minister solely devoted to addressing the problem.
“The power utility has still not managed to improve the operating efficiency of its power plants, with the electricity availability factor hovering at a desperately low 55.9% towards the end of May,” Huntley said. “As a result, the private sector continues to bear the burden of adjustment and adaptation. In the first quarter, the economy was subjected to around 23 hours of electricity shortages daily.”
Huntley said this number does not reflect the impact of prolonged outages caused by a system not designed to switch on and off intermittently.
At 0.4% quarterly growth, GDP is back above the level of economic activity that prevailed prior to the start of the pandemic, albeit by a small margin. But it remains below the level of economic activity recorded as recently as quarter three of 2022 when the economy grew 1.8%.
For 2022, SA’s economy expanded by 1.9%, after growing by 4.7% year on year in 2021. The growth outlook for 2023 remains weak, with most projections converging around 0.1% to 0.3% for the year as a whole, down from the prior estimate of 0.9% at the start of 2023.
Lings said this forecast would be significantly higher if the country’s productive sectors were embarking on significant capital expenditure and employment growth initiatives.
“In that regard, the president’s Energy Action Plan ... is critical to reinvigorating the SA economy.”
Lings said a growth rate of around 1% to 2% would still be well below the rate required to inspire a broad-based increase in private sector fixed investment and job creation.
North-West University professor Raymond Parsons said the geopolitical tension that emerged in the second quarter as a result of SA’s stance on the Russia-Ukraine conflict has imposed a higher risk premium on the country and has already negatively affected investment sentiment in the current quarter.
Update: June 6 2023
This article has been updated with new information.
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