GDP data shows the economy expanded further in 2Q21

Thanda Sithole, Senior Economist at FNB

As expected, today's GDP release revealed the material forecast risk that we highlighted in our weekly report. Preliminary GDP growth for 2Q21 marginally surprised to the upside, coming in at 1.2% q/q (from 1.0% q/q in 1Q21) compared with both our and consensus expectations of 0.9% q/q. The forecast for 2Q21 was tricky as the revised GDP from the latest 2015 benchmarking cycle did not have 1Q21 GDP actual figures, unlike with the previous GDP data set. Real GDP (not seasonally adjusted) grew by 19.3% y/y (versus our 18.5% y/y and consensus’s 17.8% y/y estimate), reflecting last year's lower base when the real GDP level sharply declined by R191.8 billion y/y in 2Q20 due to the large-scale lockdown measures that the government implemented to curb the spread of the coronavirus. The level of real GDP is still down by 0.7% compared to the non-pandemic 2Q19 level, reflecting continued and entrenched economic slack.

The upside surprise from the 2Q21 quarterly growth out-turn was primarily driven by a more robust growth performance of 6.9% q/q in the transport sector, 2.5% q/q in the personal services sector and 6.2% q/q in the agricultural sector. Growth in the transport sector was due to increased economic activity for land transport and communications services, while agriculture benefited from increased production of field crop, horticulture and animal products. As expected, the manufacturing sector contracted by 0.8% q/q (Figure 1), which Stats SA attributed to a larger contraction in the petroleum, chemicals, rubber and plastic products division. Financial intermediation, insurance, real estate and business services (FREBS) contracted by 0.4% q/q, shaving off 0.1 percentage point from GDP growth.

Overall, compared to pre-pandemic 4Q19 levels, robust performance in the agricultural sector’s activity has persisted – assisted by favourable demand and weather conditions, while activity in the FREBS sector has moved sideways. Other sectors have also persistently crawled out of a pandemic-induced slump, and their respective activities are gradually gravitating towards the pre-pandemic 1Q20 levels. However, the construction sector is still lagging behind in the ongoing recovery, which is reflected by the stagnant growth in gross fixed capital formation (GFCF).

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