By Adriaan Pask
The South African economy rose by 0.40% q/q in the three months to March 2023, following a downwardly revised 1.10% decline in the previous quarter, thus avoiding a technical recession.
The economy rose by 0.20% y/y in the first quarter, down from 0.80% in the previous three-month period.
Eight of the 10 industries tracked by Statistics South Africa (StatsSA) recorded growth in the first quarter despite record load shedding, with manufacturing, finance, real estate, and business services making the biggest contributions to growth.
On the expenditure side, government spending increased by 1.20%, while household consumption increased by 0.40%. Meanwhile, net exports detracted 0.2 percentage points from total GDP, as exports increased by 4.10% while imports rose by 4.40%
The impact
The FTSE/JSE All Share Index (ALSI) continued to weaken on Tuesday morning, led by a decline in resources and industrials, as attention shifted to the US monetary policy trajectory. “The US services purchasing managers’ index (PMI) indicated that the US service sector continued to expand in May, though at a slower rate compared to April. While the PMI declined to 50.3, below market expectations of 51.5,” Business Day reported. This reinforced bets of a halt in US rate hikes as numerous data sets now point to a slowing US economy.
At 12h30 the rand had strengthened 0.17% to R19.22/$, 0.54% to R20.54/€ and 0.48% to R23.85/£.
The South African 5-year and 10-year government bond yields fell to 9.51% and 10.99%, respectively. While the 30-year yields declined 0.64% to 12.47%.
The assessment
Protracted load shedding and continued political uncertainty are expected to weigh on the South African economy and investor sentiment, but low economic growth and political risks are already priced into very depressed valuation levels in large portions of the local market. Our outlook for local equities, therefore, remains favourable.
We believe it is particularly important that advisers spend time engaging with clients about their long-term strategy and reiterating that our growth assumptions already take periods of market weakness and underperformance into account. While it can be difficult to resist the urge to make adjustments to portfolios in light of a challenged economic backdrop and often sensationalist market reports, clients are best served by focusing on their long-term plans.
We will continue to monitor any developments that pose a threat to the performance of our equity portfolios and make adjustments when warranted.
GDP data for the second quarter is expected to be released on 5 September 2023.
Adriaan Pask is the CIO at PSG Wealth
** The views expressed do not necessarily reflect the views of Independent Media or IOL.
BUSINESS REPORT