South Africa’s economy expanded by 1.9% in the first three months of 2022, an uptick from the 1.2% growth in the fourth quarter (Q4) of 2021.
In its routine release of the country’s quarterly gross domestic product (GDP) figures on Tuesday, Statistics South Africa (Stats SA) reported that economic growth in the period recovered to pre-Covid-19 levels with real GDP valued at R4.61 billion, slightly higher than the R4.56 billion recorded in the first quarter of 2019.
The improved economic performance this period was led by growth in the manufacturing as well as the trade, catering and accommodation industries.
According to Stats SA, the manufacturing industry grew by 4.9% in Q1, contributing 0.6 percentage points to GDP growth, while the trade, catering and accommodation industry grew by 3.1%.
However, the construction and mining industries both registered contractions of 0.7% and 1.1% respectively.
GDP grew by 4.9% overall in 2021, marking a post Covid-19 recovery after the economy contracted by 6.4% in 2020.
With the country’s unemployment rate for Q1 2022 at 34.5% – slightly lower than that seen in Q4 2021 of 35.3% – there is more pressure on government to push for much higher levels of economic growth that will create more jobs.
Mining sector decline
Anchor Capital investment analyst Casey Delport says the reported decline in performance of the mining industry was unsurprising, adding that the sector’s future may continue looking grim come quarter two.
“This poor performance from the mining sector is largely unsurprising, given that mining output in Q1 2022 suffered interruptions from heavy rainfall and industrial action,” she says.
“Looking ahead to Q2 2022, the general economic outlook looks clouded due to the slowdown in economic activity in SA’s key trading partner countries due to the ongoing war in Ukraine, as well as lockdown restriction (although now easing) in China.”
New investment increases
The state of the country’s economy is further seen in the recorded rise in new investments during the reporting period.
Stats SA revealed that total gross fixed capital formation (GFCF) came in at 3.6% in Q1 2022, up from the 1.6% reported in Q4 2021.
“The main contributors to the increase were machinery and equipment (5.4% and contributing 2.2 percentage points), transport equipment (13.5% and contributing 1.2 percentage points) and ‘other’ assets (3.6% and contributing 0.4 of a percentage point),” Stats SA says in its release.
Delport tells Moneyweb that the improved GFCF figure is something to smile about, as it indicates that the country’s economy is moving in that right direction for growth.
“It essentially means that there is more investment running to the economy – whether coming from the local front or global – it basically means there are people out there who are willing to run more money into the South African economy. Which would really mean that they have a belief that we are actually going to go somewhere in the future,” she says.
However, Stats SA did note that there was a R4 billion drawdown of inventories during the period. Contributing to these drawdowns was the decrease in trade and electricity.
Hammering down on growth
With Russia’s attack on Ukraine approaching its fourth month, consequent global supply chain disruptions resulting from the conflict has seen South Africans battling rapidly rising fuel prices, inflation and interest rates.
Recent consumer price index (CPI) figures from Stats SA revealed that annual inflation was 5.9% in April, a five-year high.
Further hammering the country’s growth capability is its energy supply challenges. South Africa has endured 28 days (about 673 hours) of load shedding this year alone.
As the recent KwaZulu-Natal floods occurred outside of the reporting period of Q1, the impact will be seen in the Q2 figures.
Data collected by the Department of Trade, Industry and Competition shows that more than 800 companies were impacted by the floods, causing about R7 billion worth of damage in the province.
According to KZN Premier Sihle Zikalala, the floods – which took place at the start of April – affected more than 30 000 jobs in the province. Car manufacturer Toyota is just one of the major companies which had to enforce a temporary closure at its Prospecton production plant.
Toyota South Africa Motors (TSAM) said at the time that the closure would last for at least 12 weeks, as the plant tries to recover from the devastating impacts of the floods.
Yearly growth forecasts
Delport tells Moneyweb that although economic growth in Q1 came in higher than expected, the continuing conflict in Eastern Europe, the Covid-19 related lockdown in China, rising fuel and food prices, intermittent load shedding in South Africa and the wage strike at gold miner Sibanye Stillwater, will all play a role in the economic slowdown expected in Q2.
Delport adds that considering all of this, Anchor Capital expects 2022’s yearly growth to average at about 1.7%, in line with the South African Reserve Bank’s forecast.
Momentum Investment in its forecast of yearly growth came in slightly higher at 1.8% , citing similar reasons.
“In our view, higher global inflation eroding demand, aggressive lockdowns in China, an unwinding of accommodative monetary policy, fiscal consolidation, structurally high unemployment and local energy supply shortages continue to raise notable downside risks to local growth,” economist Sanisha Packirisamy says in an analysis.