South Africa’s economy is back where it was before Covid, but citizens are becoming poorer and poorer
South Africa’s economy returned to the size it was before the coronavirus pandemic hit, after growing faster than expected in the first quarter.
The country’s gross domestic product (GDP) increased by 1.9% in the first quarter of 2022, general statistician Risenga Maluleke noted on Tuesday (June 7), adding that in the first three months of the year the manufacturing industry is increased by 4.9%, contributing 0.6 percentage points to GDP growth.
“Seven of the 10 manufacturing divisions recorded positive growth rates in the first quarter. The oil, chemicals, rubber and plastic products division was the largest contributor to the first quarter increase. “
The median of the estimates of 13 economists in a Bloomberg poll was for growth of 1.2%. The economy grew 3% over the previous year.
At 1.15 trillion rupees in the three months to March, GDP is now about 5 billion rupees more than in the first quarter of 2020, Bloomberg reported, citing data from the statistics agency.
However, Bloomberg said the country’s economy is trapped in a downward spiral and hasn’t grown more than 3% annually since 2012. “Political paralysis, weak corporate sentiment and high levels of crime continue to weigh on fixed investment spending, with companies wary of committing large sums of money to home projects, “he said.
The International Monetary Fund (IMF) warned in a note Tuesday (June 7) that the South African economy is expected to benefit from a boom in commodity prices, but instead is stuck in a low-growth climate due to slow government reform and policy integration and persistent woes with state-owned companies.
FNB Senior Economist Thanda Sithole said that quarterly growth as expected was mainly driven by the manufacturing sector. “The biggest surprise compared to our forecasts came in large part from the finance, real estate and business services, government services and people services sectors,” said the economist.
Meanwhile, household consumption expenditure remained relatively resilient, increasing by 1.4% qoq, albeit below 3.0% qoq in 4Q21. Employee compensation (non-seasonally adjusted) increased 5.5% y / y in 1Q22, reflecting continued wage expansion following upward revision of 5.2% y / y (previously 4.4% y / y ) recorded in 4Q21.
FNB said further wage growth above 4.5%, including quarterly net job increases in 1Q22, could further support the South African Reserve Bank (SARB) repo rate hike cycle and support its forecast of a terminal repo rate of 5.75% by the end of 2022.
Overall, the data showed that real GDP is now around 0.5% above the pre-pandemic level of 4Q19, indicating a faster recovery than initially expected, Sithole said.
Household consumption expenditure grew by 1.4% qoq after 3.0% qoq in 4Q21, reflecting the strong contribution to growth in food and non-alcoholic beverages expenditure (2.5% qoq). t, 0.4ppt), transportation (2.8% qoq, 0.4 percentage points) and restaurants and hotels (6.5% qoq, 0.2 percentage points).
Perspectives: load reduction and the war in Ukraine
FNB said it has changed its growth forecast for 2022 slightly up to 1.9% from 1.7% and will closely monitor some of the major prevailing risks. “Growth is expected to stabilize at 1.6% and 1.5% in 2023 and 2024. The cumulative impact of incremental structural reforms in recent years could ultimately stimulate growth.”
However, the results of medium-term global growth, including the overall risk of geopolitical tensions, will be critical to the medium-term growth prognosis, Sithole said.
“Although 1Q22 growth is encouraging, we are concerned about the results of growth in 2Q22 amidst the impact of the KZN floods, the load reduction, China’s zero-Covid policy and the impact of higher domestic inflation on the power of consumer purchase “.
Momentum economist Sanisha Packirisamy said growth momentum is expected to be moderate in the second quarter as extensive flood damage in KwaZulu-Natal and an increased incidence of load relief held back economic activity.
Packirisamy said six of South Africa’s 10 industries still operate below pre-pandemic levels.
Real economy growth has averaged 0.5% pedestrian over the past five years and 1% over the past decade, which is significantly less than the SA average population growth rate (0.5%) for the same period. “This suggests that citizens are becoming poorer on average”Said the economist.
“In our view, rising global inflation eroding demand, aggressive blockades in China, easing of accommodative monetary policy, fiscal consolidation, structurally high unemployment and local energy supply shortages continue to raise significant downside risks to local growth.
“We expect an average growth of 1.8% in 2022 and 2023. This is in line with the Reuters Econometer survey of May 2022 and broadly in line with the SA Reserve Bank’s projections of 1.7% and 1.9%, “Packirisamy said.
Citadel chief economist Maarten Ackerman said it will take steady quarter-over-quarter growth over the next period before the country makes significant progress in alleviating South Africa’s growing poverty and record levels of unemployment.
“GDP is printed much stronger than expected, which, in marginal terms, has significantly brought us back to where we were before the pandemic, so we have finally recovered the economic loss due to Covid-19,” he said. Ackerman.
“While it is good to see a recovery, it must be borne in mind that this still leaves South Africa with nearly three years of no real growth, a situation that has exacerbated the country’s social issues,” he said. “Although the unemployment rate has recently dropped to 34.5%, we cannot deny that urgent action is still needed to create jobs and stimulate entrepreneurship.”
Looking at where South African growth came from, the best performing sectors in the last quarter were manufacturing; trade, catering and accommodation; electricity, gas and water; and transport, storage and communication.
The country also experienced very healthy consumer spending in the first quarter of 2022, Ackerman said. “We have seen consumers support the service economy. The economy has been greatly boosted by huge increases in spending on restaurants and hotels, transportation, food and soft drinks, as well as communications. Many services have benefited from the complete opening of the economy “.
Ackerman stressed that it was encouraging to see the economy recovering from the collapse of the pandemic. “To grow from here, the country must focus all its efforts on reforms to ensure sustainable growth to make a breakthrough in addressing the social needs of most South Africans.”