Some good news expected for South Africa’s GDP data this week

Economists and analysts expect South Africa to narrowly avoid a technical recession, with Q3 gross domestic product (GDP) data this week projected to swing into growth territory.

Although President Cyril Ramaphosa’s Phala Phala farm scandal and persistent load shedding have negatively affected sentiment and activity in South Africa’s economy, sector performance has surprised on the upside, data shows.

According to the Bureau for Economic Research (BER), the GDP numbers – to be published by Stats SA on Tuesday (6 December) – are currently forecast to be up by 0.7% quarter on quarter, following a 0.7% decline in Q2.

The projected gains are partly possible due to the normalisation of manufacturing and mining output after the KZN floods and gold mining strikes, the BER said, while the quarter also represents the first uninterrupted quarter of activity since the end of the Covid-19 lockdown.

South Africa’s lockdown ended in Q2, on 5 April 2022.

The improved economic outlook also saw the nation’s unemployment rate drop to 32.9% in Q3 from 33.9% in Q2, according to SA’s Quarterly Employment Statistics (QLFS).

However, the BER noted that the improvement in the job market might be overstated as Stats SA received more surveys after reintroducing in-person surveying.

Economists at Nedbank also see a turn for the economy in Q3, with its latest projections pencilling in growth of 0.4% for the quarter, in line with the consensus from economists and analysts polled by Bloomberg.

“Value added by most industries rebounded off the low base established in Q2, when the floods in KZN, hard lockdowns in China and regular power outages disrupted output,” Nedbank said.

• Among producers, mining and manufacturing output increased over the quarter, despite heavy load-shedding, which resulted in a drop of 1.9% q-o-q in electricity production.
• Within services, real income from wholesale trade, motor vehicle trade, accommodation and food services increased over Q3, but retail sales declined by 1.9% q-o-q.
• High-frequency statistics reflect mixed performances in the transport sector, with land freight increasing considerably and passenger rail transport down.
• The banking sector fared relatively well, posting robust growth in credit extension.

Despite the bright spots across various sectors, however, Nedbank noted that the expenditure breakdown of GDP is expected to show continued albeit softer growth in consumer spending, with high inflation keeping households under pressure.

Looking at Q4

Recent data and index readings point to tables turning for South Africa’s economy, with boosted confidence heading into the end of the year – albeit off a low base.

Absa’s Purchasing Management Index (PMI) – an economic activity index based on surveys done by purchasing managers in the manducating sector –  climbed to 52.6 in November compared to 50 in October, representing a boost in activity in the sector.

The PMI increase in November was spearheaded by a rebound in sales orders, which sunk heavily after intense load shedding in September.

Export sales also saw growth in November after a strike-intensive October period driven by the 11-day Transnet protest.

Moreover, business activity also grew to 49.5 in November from 48.8 in October, which Absa noted was remarkable considering the effect load shedding has on a factory’s production line.

Vehicle sales also increased by 18.2% year-on-year, according to the November data. Vehicle exports were 64.7% higher than in the same period – January to November – last year.

The construction sector, featured in the FNB/BER Civil Confidence Index (CCI) on Monday (5 December), also observed an improved economic outlook, which rose from 24 in Q3 to 31 in Q4 – the highest since 2017.

The Civil Confidence Index (CCI) varies from 0 (respondents are utterly unsatisfied) and 100 (respondents are completely satisfied). 50 means that respondents are equally satisfied and unsatisfied.

The improved confidence was linked to better activity and profitability over the quarter. Senior economist at FNB, Siphamandla Mkhwanazi, noted that Q3 already saw a notable increase in confidence from Q2, so it was encouraging to see further growth in Q4.

However, a Q4 score of 31 means that those in the construction industry still feel unsatisfied, which is linked to prolonged tender adjudication, the cost of business forums, and pressures around the so-called ‘construction mafia.’

Uncertainty also persists around renewable energy projects, Mkhwanazi said, as it remains to be seen how quickly investment into these projects will take off.

GDP is expected to grow by an annual average rate of around 1.5% from 2022 to 2025 in South Africa, according to Nedbank.

Read: The ugly truth lurking inside South Africa’s latest jobs data

Some good news expected for South Africa’s GDP data this week