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PPS: GDP Q3 commentary

09 December 2020 Luigi Marinus, Portfolio Manager at PPS Investments
Luigi Marinus, Portfolio Manager at PPS Investments

Luigi Marinus, Portfolio Manager at PPS Investments

The South African economy saw a rebound in Gross Domestic Product (GDP) during the third quarter of 2020. GDP increased by 66.1% quarter-on-quarter annualised (seasonally adjusted).

The 13.5% growth for the quarter was the first positive return after four negative quarters. It was largely expected that GDP would rebound as lockdown restrictions, that greatly affected the second quarter GDP growth, were lessened and economic activity could increase during the third quarter. Year-on-year GDP growth still saw a contraction of 6.0% highlighting that even after the strong rebound a full recovery has not yet been achieved.

All 11 industries delivered positive growth in the third quarter after 10 of the 11 contracted in the second quarter. The largest contributors were Manufacturing that added 16.2%, Trade 14.6% and Mining 11.8%. The primary sector which is made up of agriculture and mining again saw a large difference in growth rates during the quarter. Agriculture was the only industry with positive growth in the second quarter and rose 18.5% in the third quarter contributing 0.6%, while mining that was down 72.0% in the second quarter grew by 288.3% in the third quarter contributing 11.8%. In the secondary market that includes manufacturing and construction there were large quarterly rebounds of 210.2% and 71.1% providing contributions of 16.2% and 1.9% respectively. The tertiary sector followed suit with a strong rebound after an average decline of 40.0% in the second quarter.

Even after the anticipated sharp declines across industries in the second quarter the size of the rebound in manufacturing and mining has been unexpected. All 10 manufacturing industries increased production while the platinum group of metals added significant value to the mining industry. Trade, catering and accommodation was the third industry that also saw a more than doubling in growth (+137.0%) as these industries opened to the public.

The size of the most recent GDP moves have been unprecedented as the strict lockdown has had a severe effect on the economy. While a rebound was anticipated as the lockdown rules were eased certain industries outperformed short-term expectations. Going forward the growing concern is the possibility of a second wave of infections and the policy that will be required should this manifest. With the prospect of a number of vaccines being approved across the world it may be a matter of time before we see industries return to their full capacity and a normalisation of growth levels in South Africa.

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