PPS Investments: GDP Q2 commentary

The South African economy contracted 0.7% in real terms during the second quarter of 2022 (seasonally adjusted), which was slightly worse than economists had predicted, but slightly better than the South African Reserve Bank had predicted in their most recent Statement of the Monetary Policy Committee.

First quarter growth was also revised lower, from 1.9% to 1.7%, given downward revisions in both Agriculture and Mining. Year on year economic growth was barely positive as a result, with the economy having limped along by just 0.2% in real terms.

The primary sector weighed on growth, with both Agriculture and Mining recording lower production levels, with the Secondary Sector (Manufacturing, Electricity and Construction) also showing broad weakness. The Tertiary sector was the only one which showed increased activity levels, with Transport, Finance and Personal services all recording growth.

Some of the key issues impacting growth this year include the impact of continued severe load shedding, as well the devastating floods in KZN. Globally, factors such as the effects of the war in Ukraine and its impact on energy prices have also driven inflation higher, prompting aggressive, demand-dampening, rate hikes from the SARB.

The outlook for growth has deteriorated during recent quarters and remains clouded. Both the IMF and the SARB expect the South African economy to grow around 2% in 2022. There is however some risk to these forecasts, particularly if the global economy continues to lose momentum and recession risks rise.

Europe is potentially already in a recession, while there are signs that the US might also experience a recession at some point during the next few quarters. For now, and while inflation remains stubbornly high, Central Banks are compelled to maintain their tighter monetary policy stance, which is a constraint for growth.