GDP Q4 Commentary

The South African economy grew 1.2% in real terms during the fourth quarter of 2021 (seasonally adjusted), after the prior quarter’s 1.7% contraction. Overall, 2021 was a strong year, with full year GDP growth reaching 4.9%.

Much of this was due to 2020’s low base from which to rebound, while the favourable global growth backdrop was also a tailwind. Despite this, the size of the SA economy remains below pre-COVID levels. Going forward the outlook is more muted, with a return to trend growth, which is closer to 2% per annum.

The main contributors to growth this quarter were agriculture, as well as trade and manufacturing, which benefitted from increased production, and the rise in economic activity. The main detractors from growth were the electricity, gas and water industry (due to reduced consumption), while mining experienced lower production, particularly for iron ore, gold and coal.

The outlook for growth is stable, and the economy should continue to heal as the pandemic effects fade. Although monetary policy is tightening, conditions remain accommodative as we transition to more normal policy rates amid benign local inflation. The fiscus is also on a better footing, given improved tax collections, as well as gradual reform. The main risk to growth currently is the geopolitical backdrop, where the conflict between Russia and Ukraine has the potential to impact global growth, as well as the inflation outlook, particularly given the spike in energy and agricultural commodity prices.

For now, we continue to view South African growth assets as being relatively cheap, being priced to deliver 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. We continue to favour growth assets in general, provided the situation between Russia and Ukraine can be contained.