South Africa's economic recovery from the depths of the pandemic-induced lockdowns has generally been faster than anticipated, but industry experts have warned that the country’s socio-economic ills, ongoing energy crisis and the devastating floods in KwaZulu-Natal could very well pose a downside risk to the potential overall growth for 2022.
Statistics South Africa (StatsSA) said yesterday that the country's gross domestic product (GDP) expanded by 1.9 percent in the first quarter of 2022, representing a second consecutive quarter of upward growth following an upwardly revised 1.4 percent increase in the fourth quarter of 2021.
As a result, the size of the economy is now at pre-pandemic levels with real GDP slightly higher than what it was before the Covid-19 pandemic.
Data from StatsSA, however, has not yet measured the economic impact of the devastating floods in KwaZulu-Natal, which occurred during the second quarter in April.
This will only reflect in the GDP results due for release in September.
Anchor Capital's investment analyst, Casey Delport, said the various security issues and bottlenecks on Transnet’s railway and ports was likely to negate the impact of the positive terms of trade shock on real GDP growth.
Delport said the general economic outlook looked clouded due to the slowdown in economic activity in South Africa's key trading partner countries due to the ongoing war in Ukraine, as well as lockdown restriction, although now easing, in China.
“In addition, we expect the higher interest rate trajectory to be a drag on household consumption and thereby domestic GDP growth,” she said.
“Furthermore, the recent floods in KZN also pose a risk to growth. The damage to key infrastructure (such as the collapse of bridges, damage to roads, ports etc) is likely to hinder economic activity and disrupt the transportation of goods.
“Further compounding the matter is the various security issues and bottlenecks on Transnet’s railway and ports, which is likely to negate the impact of the positive terms of trade shock on real GDP growth.”
StatsSA said that eight of the 10 industries recorded positive growth in the first quarter, with manufacturing activity being the star performer, mainly driven by a rise in the production of petroleum and chemicals, food and beverages, and metals and machinery.
However, after a strong fourth quarter, agriculture growth was more subdued in the first quarter, edging higher by 0.8 percent mainly underpinned by increased horticulture production.
On the downside, both mining and construction contracted in the first quarter.
The mining sector, which up until now has been a key contributor to the economy amid the recent revenue windfalls, which have been driven by elevated commodity prices, contracted by 1.1 percent from the previous quarter.
StatsSA said that mining output was lower, mainly due to a pull-back in the production of platinum group metals, iron ore and gold, largely unsurprising, given that mining output in the first quarter suffered interruptions from heavy rainfall and industrial action.
Construction saw its fourth consecutive quarter of contraction, with underwhelming results reported for residential buildings and construction works.
The Don Consultancy Group chief economist Chifi Mhango said the continued decline in the construction sector, a sector that is also now dominating in terms of job shedding in the same quarter at 60 000, was concerning.
"This is the sector where the South African government has put more emphasis when it comes to infrastructure investment, therefore the current trend is worrying in relation to signs of implementation of various projects,“ Mhango said.
"If only the challenges of electricity supply and costs; logistical inefficiencies and costs can be sorted out, with speedy policy implementation, then hope is on the horizon, as these are our own goals being scored and they require a solution.“
StatsSA said household consumption, government consumption, gross fixed capital formation, exports and imports all continued to grow in the first quarter.
Investec economist Lara Hodes, however, said that despite this moderate pick-up in spend, many consumers remained financially constrained with sharply rising food and fuel prices diluting already limited disposable incomes.
Moreover, Hodes said unemployment remained at critically high levels, while mounting interest rates would continue to weigh on the indebted.
"A notable pick-up in business confidence is required to further boost private sector investment. Security of electricity supply and an improvement in the ease of doing business is imperative is imperative in this regard,“ Hodes said.
“South Africa's growth trajectory remains subject to downside risks including persistent geo-political tensions, which along with stringent lockdowns in China saw global growth projections downgraded.
“Domestically a slow, inconsistent implementation of key structural reforms outlined by the state continues to impede performance and weigh on the country’s competitiveness. Security of electricity supply remains a chief priority.”
BUSINESS REPORT