SA’s economy grew ahead of expectations in the second quarter, reflecting the positive impact that June’s moderation in blackouts had after high levels of load-shedding in April and May.
A low growth rate reduces potential tax revenues and increases the expenditure needs of the government, making it harder to achieve fiscal sustainability and forcing the government into a trade-off between balancing its budget and pursuing other policy goals, such as social welfare.
At 0.6% quarter-on-quarter growth for the three months ending June, the GDP reading published by Stats SA on Tuesday, surpassed median expectations of 0.1% among economists polled by Reuters.
The latest number is stronger than first-quarter GDP growth, which registered at 0.4%. It is back above the level of economic activity that prevailed before the start of Covid-19, albeit by a small margin.
Stats SA said the growth was largely driven by the mining and manufacturing sectors, which contributed 0.1 and 0.3 percentage points, respectively, to the outcome, with 10 major manufacturing divisions reporting an improvement in activity.
Another positive contribution came from the broad financial service sector, which added 0.2 percentage point to the headline number, reflecting increased banking, insurance and real estate activity.
The agriculture sector also surprised, recording a positive contribution after two siccessive quarters of decline.
Agriculture expanded 4.2%, driven mainly by increases in the production of field crops and horticulture products, which were helped by favourable weather conditions.
The growth performance was, however, not broad-based, with retail, transport, communication and construction activity all contracting in the quarter.
North-West University professor Raymond Parsons said other economic data — such as retail sales and credit demand — remain weak as a result of higher borrowing costs and rand depreciation, which cut disposable income.
The economy will struggle to gain sufficient momentum to sustain a higher rate of job-rich growth, he said.
“And a growth outlook of less than 1% for 2023 as a whole — with not much better rates expected in 2024 — has immediate negative implications for fiscal sustainability as tax revenues fall short of projections and government spending exceeds planned budget levels,” said Parsons.
Load-shedding, which moderated towards the end of June, is highlighted as the reason for the quarter’s performance.
Parsons said load-shedding was revved back to level 6 in early September, “illustrating the extent to which Eskom blackouts hold SA’s growth performance hostage”.
FNB senior economist Thanda Sithole said GDP growth volatility has increased since the pandemic shock and has been worsened by intensified load-shedding, reducing certainty around forecasts. Sithole said that while the economy has lagged the National Development Plan targets, reforms in energy and the ports and rail network will be critical in lifting confidence and underpinning potential growth.
“Investing in competitive human capital is also necessary for inclusive growth and empowering citizens to confront the challenging global economy,” said Sithole.
On the demand side, gross fixed capital formation dominated growth. Stats SA data shows a sharp rise in investments in imported machinery and equipment — mostly for electricity infrastructure.
Old Mutual Group chief economist Johann Els said the increase reflects strong growth in public corporations and the private sector, as well as a very strong contribution from machinery investment.
“I expect continued strong private sector fixed investment growth and further inventory rebuilding,” Els said. “I have even more conviction about my medium-term growth expectations in that growth will pick up from the dismal 1% annual average performance over the 2015 to 2019 period to around 2.5% over the medium term.”
His main reason for the stronger conviction is increased private sector participation in the economy, especially in energy and logistics.
Household consumption decreased in the second quarter as consumers cut back on goods and services. Stanlib chief economist Kevin Lings said this is not surprising given persistent electricity outages, sustained high interest rates, falling real household incomes and lack of effective political leadership.
Lings said the improvement in foreign tourism that was evident earlier in the year appears to have lost momentum. “This could reflect a range of factors including a plethora of negative news associated with SA in recent months.”
He said that there was also exceptionally strong growth in the takeaway and fast-food industry in SA earlier in the year “but this also appears to have lost momentum as households adjust to declining real incomes and high interest rates”.
Senior economist at Oxford Economics Jee-A van der Linde expects to see modest real GDP growth in coming quarters, though Oxford Economics has not ruled out a third-quarter contraction as rising fuel prices together with electricity supply constraints and logistical bottlenecks continue to undermine the economy’s performance.
Van der Linde said that while the latest upside GDP surprise is likely to see upward revisions to analysts’ 2023 growth forecasts, SA’s economy is not out of the woods at all. “Next year’s elections present novel uncertainty with the country’s macroeconomic fundamentals weaker than before the pandemic, and amid widespread impediments to growth.”
Update: September 5 2023
This article has been updated throughout with new information and comment.
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