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Data suggests economy to recover this year but work needed to move to sustainable growth path

9th March 2021

By: Schalk Burger

Creamer Media Senior Deputy Editor


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High-frequency data suggests that a strong economic recovery is under way this year, in tandem with South Africa’s lockdown having been scaled down to Level 1.

South Africa must capitalise on the economic rebound to move its economy onto a more sustainable, job-rich growth path, says North-West University Business School economist Professor Raymond Parsons.

Commenting on the release of the latest gross domestic product (GDP) data, published by Statistics South Africa (Stats SA), he says both the positive global and domestic economic trends predicate an overall rebound in the South African economy this year, albeit off a low base.

"On present evidence, this economic rebound could amount to about 3% growth in 2021 as a whole, which will permeate most business sectors as the recovery proceeds," he says.

However, there is still a long way to go to restore national output and for employment to return to pre-pandemic levels, and several uncertainties remain, he warns.

"The improved short-term economic outlook is, therefore, what South Africa must now visibly build on to move its economy into more sustainable job-rich growth territory in the period ahead.

"The widely-expected official confirmation from Stats SA that the economy experienced a 7% [contraction in] GDP in 2020 aligns with most other recent authoritative assessments of the economic damage the country suffered last year from the drastic pandemic lockdown," Parsons points out.

The negative growth figure for 2020 demonstrates how much economic ground was lost last year in terms of widespread business failures, huge job losses and significant shrinkage in disposable income, he adds.

Meanwhile, industry body the Steel and Engineering Industries Federation of Southern Africa (Seifsa) says the rise in economic activity in the fourth quarter of 2020 is very encouraging, especially for the metals and engineering sector.

"Signs of recovery are already evident, with production declines easing in key sectors such as manufacturing and mining, and purchasing managers’ index numbers moving into expansionary territory amid the relaxation of Covid-19 lockdown restrictions," Seifsa chief economist Chifipa Mhango says.

The growth rate in the fourth quarter of 2020 was attributed to mainly eight sectors recording positive growth between the third and fourth quarters. Of these, manufacturing registered the biggest positive growth rate of 21.1%, while the construction sector grew by 11.2%.

The growth in these two sectors is particularly encouraging, as they are key market segments for metals and engineering-sector products, accounting for more than 70% of the industry’s production sales volume in South Africa, he adds.

"The overall total gross domestic product for South Africa in 2020 declined by 7% when compared with 2019, with construction declining by 20.3%, mining by 10.9% and manufacturing by 11.6%. The metals and engineering industry is heavily reliant on the performance of the mining, construction and building industries."

Further, gross fixed capital formation (GFCF) figures were also on a positive trajectory, increasing by 12.1% in the fourth quarter of 2020, mainly attributable to the increase in construction work, residential buildings, machinery and other equipment, as reported by Stats SA.

However, on an annual basis, GFCF declined by 17.5% in 2020 when compared with 2019, says Mhango.

Another positive for the metals and engineering industry is the 26.6% fourth-quarter increase in exports of goods and services, which is mainly attributable to an increase in vehicle and other transport equipment, precious metals, stones and base metals, which form part of the metals and engineering industry, he notes.

“This is encouraging, as local demand remains relatively weak and export markets offer opportunities for the metals and engineering industry. However, there has to be policy intervention by the government to address the challenges faced by the industry in order for it to be competitive internationally. A speedy implementation of the Steel Master Plan remains key,” he says.

Seifsa is encouraged by the increased demand for metals and engineering industry products as the government commits to its R791.2-billion public infrastructure spending plan over the next three fiscal years.

"However, to guarantee stock availability, the industry needs to move back to higher levels of capacity utilisation than the current pandemic-driven level of 68% due to working restrictions at plant level," he concludes.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online



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