As expected, the South African economy contracted 1.5% in real terms during the third quarter, affected by the riots in July as well as tighter lockdown restrictions. The economy remains on track to deliver 5% growth for 2021 though, with a fourth quarter rebound anticipated. Economic growth should decelerate to around 2% in 2022 as the economy adjusts to more normal conditions.
The main contributors to growth this quarter were Finance and Personal Services, while most other industries saw declines in production. Agriculture, Trade and Manufacturing were the industries which were hardest hit, mostly resulting from the civil unrest.
The South African Reserve Bank hinted at weaker third quarter growth in last month’s Monetary Policy Statement, wherein they announced the 0.25% rate hike. This was probably more a pre-emptive move and in keeping with the trend or higher rates globally because the tepid economic growth outlook should have little impact on currently well-contained inflation locally.
Despite the shift back to below trend economic growth, South African growth assets are relatively cheap at the moment, being priced to deliver reasonably good returns going forward. As a result, our multi-asset portfolios are overweight SA equities as well as foreign, while also retaining a meaningful weighting in SA government bonds, with their high yields building in a large risk premium.
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