PPS Investments: GDP Q3 commentary

The South African economy grew 1.6% in real terms during the second quarter of 2022 (seasonally adjusted), substantially ahead of economist expectations.

Forecasters, including the South African Reserve Bank, had been expecting third-quarter growth of just 0.4%. Given the upside surprise, there is a good chance 2022 growth will exceed the Reserve Bank and National Treasury’s sub-2% expectation.

Growth was driven to a large extent by the primary sector, particularly agriculture. Increased mining production also contributed to growth. Within the secondary sector, which also grew, construction and manufacturing were the main drivers, although electricity segments detracted slightly. The tertiary sector showed modest growth, driven mainly by transport and finance-related business activity, while personal services activity contracted.

Better-than-expected third-quarter growth is refreshingly positive given the sustained wave of negative news both locally and abroad. However, we would caution against reading too far into the rebound, which was driven largely by more volatile, cyclical elements. Forward-looking data, such as PMI’s and confidence measures also suggest subdued conditions ahead, with electricity availability still a major headwind.

The other significant challenge we face is that the global economy is currently on a downswing. Global growth is decelerating, and financial conditions are still tightening, with developed market economies probably heading toward a recession. It would be hard for SA to buck the trend under that scenario, so global factors still pose a significant risk to the domestic growth outlook. After all, the SA economy is highly cyclical given its reliance on global trade and the commodity cycle.