The South African economy grew by a better than expected 1.2% in the second quarter, growing for four consecutive quarters. The pace of growth accelerated from 1.0% in the first quarter, which was revised lower from 1.1%.
Although the economy is 19.3% larger than a year ago – having rebounded off a depressed base – overall economic activity is now only back to 2017 levels, StatsSA said.
The median estimate of four economists in a Bloomberg survey was for growth of 0.9%.
This quarter’s largest contributors to growth were transport and communication, personal services, and trade, all of which were supported by progressive economic reopening and the continued normalisation of activity, noted Reza Hendrickse, portfolio manager at PPS Investments.
Hendrickse said that the third wave, which gathered momentum in June, appears to have had a limited impact on second-quarter growth, which beat expectations. However, it has been more difficult than usual to forecast growth, given the recent rebasing by Stats SA.
“Looking ahead, we are cautiously optimistic regarding the outlook for growth. There is still some scarring from the crisis last year, but we are emerging on a reasonably good footing, with prospects appearing better than they have in prior years. Although there are still risks, growth is returning, we are seeing promising reform locally, and the fiscus is in slightly better shape.”
Maarten Ackerman, the chief economist at Citadel, noted that although the economy expanded by more than 19% compared to a year ago – it comes from a low base.
“Strong growth coupled with the change in the base year to 2015 – which resulted in the economy being 11% bigger than the previous number indicated – should support a better-than-expected fiscal outlook, which should be pleasing for rating agencies and deter any further downgrades for now.”
Given the recent rebased adjustment of GDP figures, the economy is now considered 11% bigger than previously believed. Ackerman stressed that this needs to be taken into account for context because most metrics measured as a percentage of GDP will appear better.
“Another important consideration is that, from this quarter onwards, StatsSA will no longer be reporting on quarter-on-quarter analysed numbers; only quarter-on-quarter as well as annual change,” he said.
While the 19.3% growth rate is impressive, he said it is likely at a growth “peak” off a low base. “We can still expect to see growth going forward, but the annual number is likely to decrease in the quarters to come,” Ackerman said.
Time to aim beyond pre-Covid levels
Ackerman said that although the economy has made huge strides towards reaching pre-Covid levels, there is still a way to go.
“If growth continues along these lines, we could reach pre-Covid levels over the next two quarters. While this is positive news, it is still not where economists want the country to be.
“We must consider that South Africa had been flatlining for most of 2017 to 2019, and we are now only back to 2017 Q4 levels – the real goal is, therefore, to exceed growth levels just before the Covid decline. This can happen in time but is only likely to happen towards the end of 2022 if the growth trajectory continues.”
Lullu Krugel, chief economist for PwC Strategy& Africa, and Dr Christie Viljoen, PwC Strategy& economist, cautioned that third-quarter GDP would see headwinds from unrest and level 3 lockdown.
Given the large, lockdown-induced negative impact on GDP during the second quarter of last year, the annualised growth rate was always expected to be large, said Krugel.
Real GDP growth (%)
The South African economy expanded by an average of 7.5% y-o-y during the first half of this year. However, this did not translate into more jobs, the economist said.
While the country had 15.024 million – formal and informal – jobs at the end of last year, employment fell to 14.995 million in the first quarter of this year and 14.942 million in the second quarter – a net loss of 82,000 jobs during 2021H1.
Formal non-agricultural employment declined from 10.495 million in 2020Q4 to 10.200 million in 2021Q2 – i.e., a net loss of nearly 300,000 formal jobs during the first half of this year. “This is a staggering number. Unsurprisingly, South Africa now has the highest official unemployment rate globally,” said Viljoen.
At 34.4% in 2021Q2, this is higher than Nigeria (33.3%), Bosnia and Herzegovina (32.4%), Angola (31.6%) and Palestine (26.4%).
Looking ahead, Krugel said it is likely that the third quarter will see some pressure on the rate of recovery due to a combination of adverse effects from 1) unrest in KZN and Gauteng in early July as well as 2) an extended level 3 lockdown still in place.
“The severity of the mid-year wave, and the accompanying strictness of associated lockdowns, is the primary driver behind the nature of the economic recovery alongside the impact of electricity load-shedding.”
“We expect the current adjusted level 3 lockdown to be in place for the rest of September. While active cases under the third wave of infection have declined from a peak of more than 200,000 in mid-July, this reading has not dropped below 140,000 over the past two months,” PwC said.
While some forecasts suggest that the South African economy will grow by more than 4.0% this year, PwC said its modelling points to a figure closer to 2.5%.
“The mediocre y-o-y growth seen in the first half of this year coupled with the negative factors highlighted for the third quarter does not encourage much optimism about how quickly South Africa’s GDP will be back to pre-pandemic levels,” said Viljoen.
“Our baseline and downside assumptions also consider a likely fourth wave of infections during the summer holidays. Minister of health Joe Phaahla recently warned that authorities are expecting a fourth wave to materialise in November.
“He expressed concern with the long tail of the third wave and the risk that South Africa could move from the current wave straight into another wave over the summer.”
Bloomberg reported that the economy is likely to contract in the third quarter after deadly riots, looting, and arson erupted in July and weighed on activity in the eastern KwaZulu-Natal province and the commercial hub of Gauteng – the two biggest provinces by contribution to GDP.
A cyber attack at the state-owned ports and rail operator also hobbled trade at key container terminals and led the company to declare its second force majeure in a month.
“A fourth wave of Covid-19 infections that’s due in early December and could prompt stricter lockdown measures amid vaccine hesitancy, electricity-supply constraints and the slow pace of structural reforms could further weigh on output for the second half of the year. It could also hinder job creation in a nation where more than a third of the workforce is unemployed.”