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SA economy finally hits pre-COVID GDP levels, but what now?

08 June 2022 Citadel
Maarten Ackerman, Chief Economist and Advisory Partner at Citadel

Maarten Ackerman, Chief Economist and Advisory Partner at Citadel

Citadel's Chief Economist, Maarten Ackerman, unpacks the newly released Q1 2022 GDP figures, and things are looking positive.

The South African economy is officially regaining momentum and has finally reached pre-pandemic gross domestic product (GDP) levels. This comes as a result of significant contributions coming from the manufacturing, trade and hospitality sectors, according to Maarten Ackerman, Citadel’s Chief Economist.

However, Ackerman warns that it will take consistent quarter-on-quarter growth over the next while for the country to make significant strides in alleviating South Africa’s growing poverty and record levels of unemployment.

Ackerman was analysing the 2022 first quarter (Q1) gross domestic product (GDP) data released earlier today by Statistics South Africa, which revealed 3% year-on-year real GDP growth as well as quarter-on-quarter economic growth of 1,9%. According to Stats SA, the country had a R1 152 billion economy in Q4 of 2018 and is now R1 153 billion strong.

Pre-pandemic recovery: The SA economy of Q1 2022 has recovered to Q4 2018 levels. Source: StatsSA

STILL THREE YEARS OF “NO GROWTH”

“GDP printed much stronger than expected which, in rand terms, has significantly bolstered us back to where we were prior to the pandemic, so we have finally recovered the economic loss as a result of COVID-19,” says Ackerman.

Although it’s good to see recovery, one must bear in mind that this still leaves South Africa with almost three years of no real growth, a situation that has exacerbated the country’s social issues, he says. “Although the unemployment rate recently dropped to 34,5%, we cannot deny that urgent intervention to create jobs and drive entrepreneurship is still required,” says Ackerman.

PERFORMANCE BY INDUSTRY

Looking at where South Africa’s growth came from, the past quarter’s top performing industries were manufacturing; trade, catering and accommodation; electricity, gas and water; and transport, storage and communication.

Growth industries: The eight highest growing industries in SA in Q1 2022. Source: StatsSA

The manufacturing sector grew by an impressive 4,9% and was closely followed by trade, catering and accommodation which grew by 3,1%, “demonstrating the significance of the hospitality industry” and the positive economic impact of reopened tourism.

“It was a pity to see mining contracting since Q4 2021 even as South Africa experienced an increased demand for commodities due to the Russia/Ukraine conflict. “This demonstrates some of the logistical issues the sector faces,” says Ackerman, alluding to the rail networks and harbours that mining companies use to export, which could be better optimised to help meet international demand. Construction and mining both contracted in Q1, down by 0.7% and 1.1% respectively.

THE IMPACT OF CONSUMPTION AND CONSUMER SPENDING ON THE ECONOMY

“From a consumption point of view, we had very strong imports and exports. Gross fixed capital formation was up 3,6%, which is very encouraging. This is the strongest growth that we’ve seen in that category over the last five quarters. This is the second positive in a row, which is normally an indication that business is willing to invest in the economy and probably has a more positive longer-term view as a result,” said Ackerman.

The country also saw “very healthy consumer spending” in the first quarter of 2022, said Ackerman. “We saw consumers supporting the service economy. The economy was greatly boosted by huge increases in spending on restaurants and hotels, transport, food and non-alcoholic beverages, as well as communication. Many services benefited from the economy being fully opened.”

In conclusion, Ackerman pointed out that it was encouraging to see the economy making a full recovery, after the pandemic slump. To grow from here, the country needs to focus all its efforts on reforms to ensure sustainable growth to make inroads in addressing the social needs of the majority of South Africans.

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