Consumer spending to remain healthy predicts NKC African Economics
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SOUTH Africa’s economic recovery will be a long process, but prospects look better on the consumer spending front, according to a research report released yesterday by NKC African Economics.
Economic activity surprised to the upside in the first half of this year, with industrial production in particular boosted by positive manufacturing and mining growth.
“The fragilities of the South African economy were on full display as it endured a severe contraction in 2020. This year, the economy had a better-than-expected start, but strap in, as the recovery process will be a lengthy one,” said NKC African Economics senior economist Pieter du Preez.
He said the financial services sector had also accelerated in the first half. He forecast gross domestic product (GDP) growth of 4.3 percent this year, assuming the effects of a third wave of the pandemic, the severity of which would matter going forward.
He said consumer spending growth in South Africa was expected to remain healthy over the next five years, despite local economic fragilities.
“Specifically, growth in nominal US dollar-denominated consumer spending in Johannesburg and Cape Town is forecast to average close to 8 percent per annum over the next five years.”
Tourism was set for a long recovery period, with tourist arrivals and income expected to return to pre-pandemic levels only by 2025, the report said. The poor vaccination drive in South Africa would result in the tourism sector recovering more slowly than previously expected, the report said.
After contracting by 11.6 percent last year, manufacturing production was forecast to hit 8.3 percent this year.
The construction sector would also record a marked recovery this year, but the level of activity would remain more than 10 percent below pre-pandemic levels, as the sector continues to struggle, according to the report.
The seven-day moving average of new Covid-19 cases has increased more than tenfold over the past two months. Inflation rose markedly to 4.4 percent year-on-year in April.
“This acceleration in price pressures came as no surprise, given the increase in international oil prices over the past couple of months.
“Consumer Price Index inflation will continue to rise over the short term, as Brent crude prices average higher than last year, while electricity prices are also expected to jump by more than 15 percent in July,” said Du Preez.
Exports rose by 51.1 percent year-on-year to R570 billion during the first four months, while imports increased by only 11.1 percent to R423bn, so the trade account switched to a surplus of R147bn from January to April, from a R3.6bn deficit in the same period last year. The biggest driver of this was higher mining commodity prices.
Industrial sector growth was expected to outpace GDP growth this year. However, the outperformance was likely to be temporary, because the sector was in need of real reforms for sustained growth to set in, said Du Preez.