South Africa’s gross domestic product (GDP) contracted by 1.5% in the third quarter of the year.
Statistics South Africa’s figures show that the trade, catering and accommodation industry decreased by 5.5%, contributing -0.7 of a percentage point to GDP growth. Decreased economic activities were reported for wholesale, retail and motor trade; and catering and accommodation services.
The manufacturing industry decreased by 4.2% in the third quarter, contributing -0.5 of a percentage point to GDP growth. Eight of the ten manufacturing divisions reported negative growth rates in the third quarter.
The motor vehicles, parts and accessories and other transport equipment division made the largest contribution to the decrease in the third quarter. The food and beverages division and basic iron and steel, non-ferrous metal products, metal products and machinery division also made noteworthy contributions to the contraction.
The agriculture, forestry and fishing industry decreased by 13.6% and contributed -0.4 of a percentage point to GDP growth. The decrease was mainly as a result of lower production of field crops and animal products.
The transport, storage and communication industry decreased by 2.2%, contributing -0.2 of a percentage point. Decreased economic activity was reported for land transport and air transport.
Unadjusted real GDP at market prices for the first nine months of this year increased by 5.8% compared with the first nine months of 2020.
Most commentators concur that the contraction in GDP was unexpected, however, they are bullish for the long term.
“The high unemployment level of 34.9% in South Africa in the third quarter aligns with overall total GDP decline even at sector level, and reflects the damage the economy suffered from the July unrest, load-shedding and the metal industry strike; coupled with challenges of rising costs of production attributed to logistical and energy costs at industry level.
Gross fixed capital formation (GFCF) data released alongside the GDP figures reflecting flat movement at 0% also demonstrate the weakness in the South African economy’s ability to attract much-needed investment, with the ratio of GFCF to GDP still below 20%,” Don Consultancy Group (DCG) chief economist Chifi Mhango says.
North-West University Business School economist Professor Raymond Parsons says the flat GFCF is of particular concern.
“A substantial boost in both private and public investment is urgently needed if the South African economy is to [deliver] sustainable growth over the next couple of years,” he notes.
PPS Investments portfolio manager Reza Hendrickse notes that, despite the declines, the economy remains on track to deliver 5% growth for the year, with a fourth-quarter rebound anticipated.
“Economic growth should deccelerate to around 2% in 2022 as the economy adjusts to more normal conditions.
"The South African Reserve Bank hinted at weaker third-quarter growth in last month’s Monetary Policy Statement, wherein it announced the 0.25% rate hike. This was probably more a pre-emptive move and in keeping with the trend or higher rates globally because the tepid economic growth outlook should have little impact on currently well-contained inflation locally.
"Despite the shift back to below-trend economic growth, South African growth assets are relatively cheap at the moment, being priced to deliver reasonably good returns going forward. As a result, our multi-asset portfolios are overweight South African equities as well as foreign, while also retaining a meaningful weighting in South African government bonds, with their high yields building in a large risk premium,” he notes.
FNB senior economist Thanda Sithole comments that the bank retains its 4.7% growth forecast for the full year, which implies a reasonably solid growth rebound from last year’s 6.4% GDP contraction. However, it is cautious of a myriad of economic headwinds in the next quarter and ahead.
“Beyond 2021, growth will moderate and will largely depend on the trajectory of the pandemic, the pace of vaccination and accelerated growth-enhancing policy interventions, some of which are articulated in the Economic Recovery and Reconstruction Plan. The availability of stable electricity supply will also be critical for growth over the medium term,” Sithole explains.
The Nedbank Group Economic Unit expects more subdued growth going forward, given the likely adverse impact of the fourth wave of Covid-19 infections on confidence, travel and tourism in December.
Given the downward revisions to the first-half outcomes, real GDP growth of a softer 4.8% (previously 5.1%) is now likely for calendar 2021. Growth is expected to moderate further to around 1.8% (previously 1.9%) in 2022, the unit says.
“While the headline number was a negative surprise, the markets did not react strongly to the release, with both the rand and bonds trading stronger into early afternoon trade,” Matrix Fund Managers economist and macrostrategist Carmen Nel comments.
The fund expects an about 1.2% to 1.5% rebound in GDP in the next quarter, but pending restrictions owing to the Omicron variant pose downside risk to this estimate.
“Notwithstanding the negative surprise in the GDP release, we do not think it is sufficient to deter the SARB from hiking the repo rate further. The Monetary Policy Committee is likely to focus increasingly on upside inflation risks, particularly related to vulnerabilities to the exchange rate. Hence, further repo rate hikes in the short to medium term should not be ruled out, even if these are unlikely to be as aggressive as the interest rate market is currently pricing in,” Nel says.