When it announced the economic growth figures for the second quarter of 2021, Statistics SA (Stats SA) pertinently pointed out that the economy has recorded its fourth consecutive quarter of growth, expanding by 1.2% compared with the first quarter.
However, it also noted that despite the gains during the last 12 months since the disastrous second quarter of 2020, the economy is now back to where it was in 2017.
“Despite the gains made over the last four quarters, the economy is 1.4% smaller than what it was before the Covid-19 pandemic,” according to the report. The researchers add that the results from this statistical release covered the months of April, May and June. “This means that the economic impact of the wave of severe economic disruption, protest action and violence in KwaZulu-Natal and Gauteng, which took place in July, will reflect in the third quarter GDP results that are due for release in December.”
The impact of the Covid-19 pandemic in perspective
Tertia Jacobs, economist at Investec corporate and institutional treasury, says that SA faces a significant budget deficit and a myriad of socio-economic challenges that impact the stabilisation and growth of the economy. “Given this stark economic reality, we are relieved that the economy maintained its momentum and achieved a bit of growth in the second quarter too.
“However, economic growth is quite pedestrian if one takes into account all the positives. The economy should be growing much faster if one considers the positive effects of the current (very) low interest rates, high commodity prices and mineral exports and high government spending.
“If it wasn’t for these positives, the growth would have been really bad,” says Jacobs, adding that the economy is still smaller that before the Covid-10 pandemic.
The Stats SA report notes that “we’re not out of the woods yet”.
The sudden drop in economic activity during the second quarter of 2020 when lockdown restrictions were at their most severe, hit the economy hard. “In the first quarter of that year, real GDP was R1 147 billion, tumbling to R947 billion in the following quarter as the country barricaded itself against the pandemic.
“The economy has seen consistent growth since that shock, but not enough to return to pre-Covid-19 levels. Real GDP was R1 131 billion in the second quarter of 2021, 1,4% down from the reading in the first quarter of 2020,” according to Stats SA.
A look at the different sectors shows that the economy is still vulnerable. The biggest contributor to GDP growth was the continued growth in exports due to the lasting commodity boom, while agriculture and household spending also showed healthy recovery. Exports increased by 4%, driven mostly by trade in mineral products, pearls, precious and semi-precious stones, precious metals and vehicles and other transport equipment.
Jacobs says that low interest rates supported household spending, as can be seen in the growth in house and car sales.
Stats SA points out that personal services, which includes health related activities, increased by 2.5% in the second quarter. “This was on the back of increased economic activity related to the second phase of the national Covid-19 vaccination programme that kicked off on May 17.
“Another contributor to growth in personal services was from medical schemes that recorded a rise in membership numbers,” says the authors of the report.
Unfortunately, some very important sectors are still lagging. The manufacturing and construction sectors are still in a “terrible” state, says Jacobs. “There is little to be optimistic about here. There is little indication that activity levels in these two sectors – often seen as the driver for sustainable recovery and long term job creation – are improving.
“It is only the development of new projects in the energy sector that is proceeding. Other infrastructural development projects are slow to start, maybe only getting going next year” she says.
Jacobs also mentions that business and consumer confidence is still low, as people are waiting for certainty regarding government policy and actions on several fronts.
“The economy got a boost for fiscal stimuli such as special social grants and the fiscus got a boost from the recovery in the mining industry. But there is uncertainty if any of the social grants will become permanent and how government will tackle Eskom’s debt.
“Meanwhile, unemployment remains a crisis,” says Jacobs.
Investec forecasts that GDP will grow by around 4.4% this year, after taking into account their expectations that the third quarter is unlikely to record positive growth after the social unrest.
This is not enough while SA is enjoying favourable tail winds, and still seeing unemployment increasing.