About the best that can be said for the latest official data on the state of the SA economy is that it has avoided recession. That is better-than-expected news. But it does not make it good.
The national economy grew by 0.4% in the first quarter, Stats SA reports. The number was slightly ahead of market forecasts. But this is the quarterly figure, comparing the first quarter to the negative fourth quarter of last year. The more useful number is this year’s first quarter compared with last year’s, which gives a sense of how we might come out for the full year. On that basis the latest growth number is just 0.1%.
We are quibbling about decimals here, but that is as near to zero as it gets. If things go badly for the remainder of 2023, we could see zero, or negative, for the year. The IMF’s latest forecast is 0.1%. The Reserve Bank’s is a hardly more optimistic 0.3%. The Treasury’s forecast at the time of the February budget was 0.9%. Clearly, that is not happening, which means SA’s fiscal outlook is sure to prove worse than budget figures projected.
As it is, the economy has yet to get back to its third-quarter peak. Even with the latest bout of growth its size in real terms is hardly above what it was on the eve of the Covid-19 pandemic in the first quarter of 2020.
On the upside, the first-quarter data shows a bit of a bounce in the manufacturing sector, which grew by a welcome 1.5% during the quarter, as well as finance, which unusually was a laggard in the previous quarter. Unusual too was the positive number for the construction sector.
The figures show decent growth in exports during the quarter, even though this was offset by slightly higher growth in imports. Another piece of good news was the continued climb in investment spending. With quarterly growth of 1.4% this is hardly shooting the lights out stuff. But at least it continues the positive trend of recent quarters after a long negative slide that severely compromised the economy’s growth potential.
Also encouraging is that the economy managed to show growth in a quarter with only one day without load-shedding. That suggests it is becoming more resilient to the energy crisis, and the growth in imports — driven by “other assets” — seems to hint at even more of the spending on imported solar panels and generators that is already yielding dividends for the economy.
The second quarter has so far seen even more severe load-shedding. The energy constraint is unlikely to get better this year; it could get worse with investment in industrial-scale renewables only starting to make a difference in the next couple of years. There is also little sign of any light at the end of the tunnel, as it were, on the rail catastrophe constraining exports and imports.
Nor can SA’s economy expect much support from the global economy. China’s bounce-back is proving to be disappointing, and in any event much of it is coming from the services sector, not the Chinese property and infrastructure sectors that have driven higher commodity prices and higher exports in the past.
Prospects for the eurozone, which is SA’s largest trade partner, seem to be improving. But the US’s outlook is uncertain and economists are again talking about a possible recession, with the Fed battling to curb inflation and a good chance that the US could see at least one more interest rate hike.
All of that is bad for this country, whose currency and bond yields have taken strain in an environment of global risk aversion. But SA’s own goals have been the bigger factor in the rand’s decline, especially relative to emerging markets that have done much better despite the unfavourable global context.
The government’s ambivalent stance on the Russian invasion of Ukraine and SA’s greylisting by the Financial Action Task Force have contributed to the negative sentiment. But its long-term growth stagnation is an even more fundamental factor in deterring international investors. The latest GDP figures from Stats SA confirm the trend.
It is again stating the obvious, but without much faster and more fundamental reforms SA’s economy is going nowhere. The government will say it is making progress on the reforms that Operation Vulindlela is trying hard to fast-track. And it is true that progress is being made, but it is at a glacial pace amid plenty of resistance to change within the public sector.
Glacial is simply not good enough.
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