Economic growth in South Africa could detract sharply in the second quarter on the back of intensified power cuts after averting a technical recession in the first three months of 2023.
Data from Statistics South Africa (StatsSA) yesterday showed that the economy slightly avoided two consecutive quarters of negative growth, buoyed by manufacturing, finance, real estate and business services.
StatsSA said gross domestic product (GDP) rose by 0.4% in the three months to March following an upwardly revised 1.1% decline in the previous three months to December 2022.
Despite the 0.4% rise in the first quarter of 2023, GDP remains below the all-time high of R1.161 trillion reached in the third quarter of 2022.
Economists have thus warned that growth would remain under pressure from load shedding, which continues to be a major constraint on business activity and sentiment in general.
Nedbank economist Crystal Huntley yesterday said that the improvement mainly reflected the impact of the previous quarter’s low base rather than any underlying upward traction.
Huntley said at this stage, real GDP was forecast to contract in the second quarter, before stabilising somewhat in the year’s second half.
“The modest bounce in the first quarter is likely to be short-lived. Load shedding intensified into the second quarter, weighing on confidence, disrupting operations, driving up production costs and eroding profits and income,” Huntley said.
“Over the full year, GDP growth is forecast to slow down to a crawl of 0.1%. Given the severity of the country’s challenges, there is still a strong probability that the economy could contract over 2023 as a whole.”
StatsSA said 8 of the 10 divisions reported positive growth rates in the first quarter of 2023, with only electricity, gas and water production, and agriculture, forestry and fisheries lagging behind.
The manufacturing and finance industries were the major drivers of growth on the supply side of the economy, while the demand side was lifted by exports, with smaller positive contributions for household, government, and investment spending.
Statistician-General Risenga Maluleke said manufacturing output rose to 1.5% in the first quarter compared to the 1.2% contraction experienced in the fourth quarter.
“The production of food and beverages was the main catalyst behind the industry’s positive showing,” he said.
Finance, real estate and business services crept up by 0.6%, mainly driven by financial intermediation, insurance and pension funding, real estate and business services.
A rise in rail freight and rail passenger transport helped the transport, storage and communication industry expand by 1.1%.
However, electricity, gas and water, and agriculture contracted in the first quarter and registered its fourth consecutive quarter of decline, dampened by weaker electricity production and lower water consumption.
North West university Business School economist Professor Raymond Parsons said an elevated level of uncertainty still prevailed about South Africa’s economic outlook and direction due to a number of recent well-known negative factors affecting the country’s performance.
Parsons said geo-political tensions emerging in the second quarter as a result of South Africa’s controversial stance on the Russia-Ukraine conflict have also imposed a higher risk premium on SA and have already negatively affected investment sentiment in the current quarter.
“Economic growth has become highly volatile in recent quarters, mainly as a result of more aggressive power outages and other economic headwinds. It is, therefore, a tribute to the resilience and adaptability of the private sector that at least a recession has been averted, given the adverse economic circumstances that needed to be navigated,” Parsons said.
“Amidst the various proposed economic remedies for SA, the biggest inherent challenge is to rebuild confidence among business and consumers. Restoring confidence is half the battle for official decision-makers as they seek to implement agreed solutions.”
Measured on a year-on-year basis, GDP rose by just 0.2% in the first quarter, in line with market estimates, following a downwardly revised 0.8% rise in the previous period
On the expenditure side, government spending rose by 1.2% and household consumption went up by 0.4%.
Meanwhile, net exports subtracted 0.2 percentage points from total growth, as exports rose 4.1% and imports grew 4.4%.
BUSINESS REPORT