South Africa’s economy has avoided a technical recession for now, having reported first-quarter growth of 0.4% in real terms (seasonally adjusted). Fourth quarter 2022 growth was also upwardly revised from -1.3% to -1.1%, thanks to better-than-expected output from certain primary and tertiary sectors.
Economic resilience was in line with economist predictions, although the broader public may have been pleasantly surprised, given the degree of ramped up loadshedding so far this year.
Surprisingly, most industries reported growth for the quarter, apart from “Agriculture, Forestry and Fishing”, where field crops and animal products saw a sharp decline in production and “Electricity Gas and Water”, experienced a drop in consumption.
Looking ahead, economic growth is expected to remain under pressure from loadshedding, which continues to be a major constraint on business activity and sentiment in general. The second and third quarters are expected to be particularly challenging given increased winter electricity demand, alongside severely constrained supply.
Our portfolio positioning currently reflects this dim economic outlook by being conservatively positioned in South African growth assets. This view however needs to be weighed up against attractive equity market valuations, which are currently already pricing in a very challenging environment.