Where is South Africa heading for the rest of the year, economists say

The South African economy grew 1.2% better than expected in the second quarter, growing for four consecutive quarters. The growth rate accelerated by 1.0% in the first quarter, which was revised downwards by 1.1%.

Although the economy is 19.3% larger than a year ago – after rebounding from a depressed basis – overall economic activity has now only returned to 2017 levels, StatsSA said.

The median estimate of four economists in a Bloomberg survey was for growth of 0.9%.

Transportation and communications, personal services and commerce were the main contributors to growth this quarter, all supported by the gradual economic reopening and further normalization of activity, noted Reza Hendrickse, portfolio manager at PPS. Investments.

Hendrickse said the third wave, which accelerated in June, appears to have had a limited impact on second-quarter growth, which exceeded expectations. However, forecasting growth has been more difficult than usual, given the recent rebasing by Stats SA.

“Looking ahead, we are cautiously optimistic about the growth outlook. Last year’s crisis is still leaving some scars, but we’re coming out on a reasonably good basis, with the outlook looking better than it was in previous years. Even if there are still risks, growth is returning, we are seeing promising reforms locally and the fiscus is doing a little better.

Maarten Ackerman, chief economist at Citadel, noted that although the economy grew by more than 19% from a year ago, it is starting from a weak base.

“The strong growth associated with the change in the base year to 2015 – which resulted in the economy growing 11% from the previous figure shown – should support a better-than-expected fiscal outlook, which should please to rating agencies and discourage any further downgrades at this time.

Given the recent adjustment in GDP figures, the economy is now considered 11% larger than previously believed. Ackerman stressed that this needs to be taken into account in context because most measures measured as a percentage of GDP will look better.

“Another important consideration is that starting this quarter, StatsSA will no longer report quarterly analyzed figures; only quarter to quarter as well as annual changes, ”he said.

While the 19.3% growth rate is impressive, he said it was likely a “spike” of growth from a low base. “We can still expect to see growth continue, but the annual number is likely to decline in the coming quarters,” Ackerman said.

Time to aim beyond pre-Covid levels

Ackerman said that while the economy has made huge strides to reach pre-Covid levels, there is still some way to go.

“If growth continues in this direction, we could reach pre-Covid levels within the next two quarters. While this is positive news, it is still not where economists want the country to be.

“We have to consider that South Africa has been stagnant for most of 2017 to 2019, and we are now only back to the levels of the fourth quarter of 2017 – so the real goal is to exceed the growth levels just before the decline of Covid. This can happen over time, but will likely only happen towards the end of 2022 if the growth path continues. “

Additional warning

Lullu Krugel, chief economist at PwC Strategy & Africa, and Dr Christie Viljoen, PwC Strategy & economist, have warned that third quarter GDP will experience headwinds from unrest and Level 3 foreclosure.

Given the large negative impact on GDP induced by the foreclosure in the second quarter of last year, the annualized growth rate was still expected to be large, Krugel said.

Real GDP Growth (%)

The South African economy grew on average 7.5% year-on-year in the first half of this year. However, that did not translate into more jobs, the economist said.

While the country had 15,024 million jobs – formal and informal – at the end of last year, employment fell to 14.995 million in the first quarter of this year and to 14.942 million in the second quarter – a net loss. 82,000 jobs in the first half of 2021.

Formal non-farm employment fell from 10.495 million in the fourth quarter of 2020 to 10,200 million in the second quarter of 2021, a net loss of nearly 300,000 formal jobs in the first half of this year. “It’s a staggering number. Unsurprisingly, South Africa now has the highest official unemployment rate in the world, ”Viljoen said.

At 34.4% in Q2 2021, this is more than Nigeria (33.3%), Bosnia and Herzegovina (32.4%), Angola (31.6%) and Palestine (26.4%) %).

Looking ahead, Krugel said it’s likely the third quarter will see some pressure on the recovery rate due to a combination of negative effects from 1) the unrest at KZN and Gauteng in early July as well as 2 ) a level 3 extended lock still in place.

“The severity of the mid-year wave, and the accompanying severity of associated lockdowns, is the primary driver of the nature of the economic recovery alongside the impact of power cuts.”

“We expect the current adjusted Level 3 lockout to be in place for the remainder of September. While active cases under the third wave of infection have declined from a peak of over 200,000 in mid-July, that figure has not fallen below 140,000 in the past two months, ” PwC said.

While some forecasts suggest the South African economy will grow by more than 4.0% this year, PwC said its modeling pointed to a figure closer to 2.5%.

“The poor annual growth seen in the first half of this year, coupled with the negative factors highlighted for the third quarter, does not encourage much optimism as to how quickly South Africa’s GDP will return to levels before the pandemic, ”Viljoen said.

“Our baseline and downside assumptions also take into account a likely fourth wave of infections during the summer vacation. Health Minister Joe Phaahla recently warned authorities expected a fourth wave to materialize in November.

“He expressed concern about the long tail of the third wave and the risk that South Africa could switch from the current wave directly to 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 eastern KwaZulu-Natal province and the mall. of Gauteng – the two largest provinces in terms of contribution to GDP. .

A cyber attack on public ports and the rail operator also hampered trade at major container terminals and led the company to declare its second force majeure event in a month.

“A fourth wave of Covid-19 infections which is expected in early December and could prompt more stringent lockdown measures due to reluctance over vaccines, electricity supply constraints and slow structural reforms could still weigh on production in the second half of the year. It could also hamper job creation in a country where more than a third of the workforce is unemployed. “

Read: South Africa’s economy posts fourth consecutive quarter of growth

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